Banks’ property exposure continues to rise

APRA has painted a mixed picture of the state of banks’ mortgage portfolios, with interest-only loans sharply rising but low-doc loans falling.

New data from the prudential regulator has revealed that ADIs issued $1.3 trillion of domestic mortgages in the March quarter – up 9.0 per cent on the previous year.

Investors increased their share of mortgage volumes from 33.5 to 34.6 per cent, while owner-occupiers fell from 66.5 to 65.4 per cent.

There were significant changes in the share of interest-only and low-doc loans among ADIs that made more than $1 billion of residential mortgages in the quarter, which together wrote 98.4 per cent of mortgage volumes.

Interest-only mortgage share climbed from 35.4 to 37.4 per cent, while low-doc loan share fell from 3.1 to 2.3 per cent.

Loans with offset facilities increased from 35.4 to 38.6 per cent, while reverse mortgages remained steady at 0.2 per cent.

The average balance of residential mortgages at those ADIs grew 3.6 per cent to $244,000.

Interest-only mortgages rose 3.4 per cent to $315,000, low-doc loans fell 2.9 per cent to $204,000, loans with offset facilities rose 3.3 per cent to $291,000 and reverse mortgages rose 4.3 per cent to $94,000.

The APRA statistics suggest that the big four banks might be carrying more risk than an average ADI, because although the majors had relatively fewer investor mortgages they had relatively more interest-only and low-doc loans.

Big four mortgage volumes increased by 8.6 per cent to $1.1 trillion, with the investor share rising from 34.2 to 35.3 per cent and the owner-occupied share falling from 65.8 to 64.7 per cent.

Their interest-only mortgage share climbed from 36.8 to 38.8 per cent, while their low-doc loan share fell from 3.4 to 2.6 per cent.

Loans with offset facilities increased from 37.1 to 40.3 per cent, while reverse mortgages remained steady at 0.2 per cent.

The average balance of big four residential mortgages grew 3.6 per cent to $248,000.

Interest-only mortgages rose 3.2 per cent to $317,000, low-doc loans fell 2.7 per cent to $203,000, loans with offset facilities rose 3.7 per cent to $298,000 and reverse mortgages rose 4.1 per cent to $91,000.

APRA warned ADIs in December that it would be increasing the level of supervisory oversight on mortgage lending.

Two specific areas of concern it flagged were interest-only loans to owner-occupiers and lenders that increased their investor portfolios by more than 10 per cent per annum.

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