Lending to heavily indebted borrowers on the rise – APRA

The spike was driven by continued low interest rates and rising property prices, regulator says

Lending to heavily indebted borrowers on the rise – APRA

Lending to customers who are already heavily indebted is on the rise, driven by low interest rates and rising property prices, according to recent data from the Australian Prudential Regulation Authority.

The share of new home loans given to borrowers with a debt-to-income ratio of more than six had grown to 21.9% in the quarter ended in June, up from 16% in the same quarter last year, APRA reported.

“In residential mortgage lending, the share of new lending with high debt-to-income ratios increased over the quarter, continuing to be influenced by the low interest rate environment and increasing house prices,” the regulator said in a statement.

While interest rates will most likely remain low for the time being, there are signs that housing prices in Australia are starting to come down, according to a report by Capital.com. And while lending to indebted borrowers is on the rise, APRA found that other measures of high-risk lending have started to drop.

“New lending at higher loan-to-valuation rations (LVRs) declined slightly, with the share of new lending at LVRs greater than or equal to 90% decreasing to 8.6% in the June quarter (second quarter) from 10.4% in the previous quarter,” APRA said.

The regulator said that the majority of new lending continued to be “well-covered by collateral” and that 61.2% of all new loans had LVRs less than 80% in the second quarter.

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The regulator said that authorised deposit-taking institutions remained strong in Q2, Capital.com reported.

“ADIs held strong capital and liquidity positions,” APRA said. “Industry profitability improved over the past year, while non-performing loans remained broadly stable.”

APRA said the outlook “appears uncertain,” although government stimulus programs and the regulator’s second round of concessions for loan repayment should provide some support, Capital.com reported.