Fewer high-DTI loans being written

The Australian Prudential Regulation Authority (APRA) has released its Quarterly ADI Property Exposure report for the June 2022 quarter, revealing that the value of home loans with high debt-to-income ratios at the banks had fallen once again.

Mortgages with a DTI of six or more are deemed to be “riskier” by APRA and the regulator has been keeping a close eye on DTIs — which had reached a record-high level of 24.4 per cent in the December 2021 quarter. 

According to APRA’s latest report, 22.1 per cent of new mortgages (in dollar terms) had a DTI ratio over six. This was down 1 percentage point from the previous quarter, when 23.1 per cent of loans were deemed to be in the “risky” category.

“The share of new lending with high debt-to-income ratios is starting to trend down, but remains elevated,” APRA noted. Indeed, the proportion of bank loans with a DTI over six was at a lower rate of 21.9 per cent one year ago.

The regulator has been working to mitigate the level of high DTI borrowing, and last year introduced a higher loan serviceability buffer rate, requiring banks to consider borrowers’ ability to meet an interest rate of 3 percentage points above the product rate — compared to the previous 2.5 percentage points.

Overall, APRA suggested that the banking industry “remained strong” in the June 2022 quarter. 

The report found that new residential mortgage lending increased by $3.7 billion in the June 2022 quarter, compared to the same quarter last year, at $159.6 billion.

There was over $2 trillion of residential mortgages on bank books as at the end of the June quarter, up 7.3 per cent on the prior year.

Of this, $1.3 trillion was owner-occupied (up 8.8 per cent on last year) and $630 billion was investor.

The proportion of new interest-only loans increased in the June 2022 quarter, comprising 20 per cent of all new loans funded during the quarter. 

Credit growth and asset quality were “healthy,” according to APRA, with non-performing loans as a share of total credit outstanding remaining “low”. The report showed that non-performing loans declined to 0.78 per cent in the June quarter, down from 0.81 per cent.

Commercial real estate lending was also found to have continued to grow.

Bank commercial property limits increased by 12.0 per cent, and actual exposures by 11.6 per cent, compared to the June 2021 quarter. 

Non-performing commercial property loans as a share of commercial property actual exposures remained steady at 0.5 per cent in the June quarter.   

APRA outlined that industry net profit improved over the year, up $5.7 billion, returning to pre-pandemic levels. 

The prudential regulator also noted that there was a reduction in charges for bad or doubtful debts (down $2.5 billion).

[Related: ANZ tightens high-risk lending]