Two of Australia’s largest banks have moved to curb high-risk housing lending, as the regulator revealed that it has warned some institutions to reduce risk lending.
Key points:
- The head of APRA revealed that the regulator has contacted some banks about an increase in risky high-income debt loans.
- ANZ and NAB have recently imposed new lower limits on these loans
- Movements will reduce the maximum amount that some home loan applicants can borrow
This week, ANZ told mortgage brokers and their bankers that as of June 6, it will stop lending to borrowers who owe more than 7.5 times their annual income.
This is lower than the previous nine times income limit.
Earlier this month, NAB lowered its debt-to-income (DTI) limit by nine to eight times its revenue.
These moves have the effect of reducing the maximum amount that a home buyer or someone refinancing can borrow from what was previously possible.
“ANZ regularly reviews its appetite and lending policies as the economic environment changes to ensure we continue to lend prudently to our customers,” a bank spokesman told ABC News.
Speaking at the AFR banking summit, ANZ’s head of retail banking, Maile Carnegie, said this morning that the change had been partly in response to APRA banking regulator’s concerns about raising the level. of loans with a DTI ratio of more than six, which he considers risky.
Nearly a quarter of new loans had a DTI of six or more during the second half of last year, although Carnegie said very few loans approached the previous ANZ limit nine times the revenue.
APRA warns some banks to raise standards
Speaking at the same bank conference a few hours later, APRA President Wayne Byres confirmed that the regulator had contacted some banks to worry about the level of high DTI loans they were issuing. .
“We will also be looking closely at the experience of borrowers who have taken out loans with multiple multiples of their income, a cohort that has grown remarkably over the last year,” he told the AFR summit.
“Interestingly, this growth has not been industry – wide development, but has been concentrated in just a few banks.
“So we chose to address our concerns bank by bank, rather than opting for any form of macro-prudential response.
“We expect that changes in the lending policy of these banks, along with rising interest rates, will cause the high level of indebtedness of the DTI to begin to moderate in the next period.”
In a written statement, NAB executive Kirsten Piper said the bank is “committed to lending responsibly” to “ensure that customers can properly manage their payments, both today and in the future.”
“NAB will continue to put responsible lending first in its approach to credit and we welcome the ongoing consultation with regulators.”
Westpac and CBA told ABC News that they had not made any recent changes to their lending policies with a high debt ratio.
Westpac said all loans with a DTI of seven or more are sent for a “manual evaluation” by their credit team.
CBA said loans with a DTI or six or more and a high value loan ratio are subject to “stricter loan parameters.”
ABC News has asked the two banks for more details on these processes.
“Probably stress bags”
APRA began stepping up its housing loan oversight in October last year, when it announced an increase in the minimum mortgage cushion.
This meant that from November, new borrowers had to be tested to see if they could meet interest rates at least 3 percent above their current rate, more than 2.5 percent. previous.
Byres said the regulator was not concerned about the potential for widespread default on housing loans in the banking sector, but was concerned that some borrowers, especially recent ones, could be under severe financial strain.
“We are now entering a very different environment than it has been for much of the last decade,” he said.
“The faster-than-expected onset of higher inflation and interest rates will have a significant impact on many mortgage borrowers, with potential pockets of stress, especially if interest rates rise rapidly and, as house prices were expected to fall.
“Residential mortgage borrowers who have taken advantage of very low fixed rates over the past two years will be highlighted, and may face a significant“ shock ”of amortization (possibly exacerbated by negative equity) when they have to refinance next year. or two “.
Negative equity is a situation in which borrowers owe more to the lender than their property is worth.
Recent borrowers with small deposits are especially at risk if house prices fall.