Two of Australia’s largest banks have moved to curb risky home loans as the regulator revealed it has warned some institutions to cut back on risky loans.
Most important points:
- APRA boss revealed regulator has contacted some banks over wave of high-risk, high-debt-to-income loans
- ANZ and NAB recently imposed new, lower limits on such loans
- The moves will reduce the maximum amount some home loan applicants can borrow
This week, ANZ told mortgage brokers and its bankers that from June 6 it would stop lending to borrowers who would owe more than 7.5 times their annual income.
That’s less than a previous limit of nine times the income.
Earlier this month, NAB lowered its debt-to-income (DTI) limit from nine to eight times its income.
As a result of these movements, the maximum amount a homebuyer or someone who refinances can borrow from what was previously possible is reduced.
“ANZ regularly reviews credit needs and policies as the economic environment changes to ensure we continue to lend cautiously to our customers,” a bank spokesperson told ABC News.
Speaking at the AFR’s Banking Summit, Maile Carnegie, ANZ’s head of retail banking, said the change was in part a response to concerns from banking regulator APRA about the rising level of loans with a DTI ratio above six, which it sees as risky.
Nearly a quarter of new loans had a DTI of six or more in the second half of last year, although Ms Carnegie said very few loans came close to ANZ’s previous limit of nine times income.
APRA warns some banks to lift standards
Hours later, at the same banking conference, APRA chairman Wayne Byres confirmed that the regulator had contacted some banks with concerns about the level of high DTI loans they were providing.
“We will also closely monitor the experiences of borrowers who have borrowed at high multiples of their income — a cohort that has grown significantly over the past year,” he told the AFR summit.
“We have therefore chosen to address our concerns on a bank-by-bank basis, rather than opting for any form of macroprudential response.
“We expect that changes in credit policy at those banks, combined with rising interest rates, will reduce the level of high DTI lending in the coming period.”
In a written statement, NAB chief executive Kirsten Piper said the bank is “committed to responsible lending” to “ensure customers can properly manage their repayments both today and in the future.”
Westpac and CBA both told ABC News that they had made no recent changes to their policies on high debt-to-income loans.
Westpac said all loans with a DTI of seven or more are sent for “manual review” by the credit team.
CBA said loans with a DTI of six or higher and a high loan-to-value ratio are subject to “tighter credit parameters.”
ABC News has asked both banks for further details about those processes.
‘Matters of stress probably’
APRA began increasing its vigilance around home loans last October, when it announced an increase in the minimum buffer for mortgages.
That meant that from November new borrowers had to be tested to see if they could handle interest rates at least 3 percent above their current ratean increase of 2.5 percent earlier.
Mr Byres said the regulator was not concerned about the potential for widespread defaults in the banking sector, but was concerned that some borrowers, especially recent ones, could face severe financial stress.
“We are now entering a very different environment than has existed for the past ten years,” he said.
“The faster-than-expected emergence of higher inflation and interest rates will have a significant impact on many mortgage borrowers, with likely tensions, especially if interest rates rise rapidly and, as expected, house prices fall.
Negative equity is a situation where borrowers owe more to the lender than their property is worth.
Recent borrowers with small deposits are especially at risk if house prices fall.
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