APRA wants more data on borrower debt levels

The prudential regulator is seeking feedback from the banks on its plans to begin requesting additional data on borrower debt-to-income ratios.

APRA this week responded to six submissions relating to its proposal to revise the current residential mortgage lending reporting requirements for banks, released in October last year.

Now the regulator is looking to add additional reporting requirements around debt-to-income ratios, which were not included in the October consultation.

“In March 2017, APRA noted heightened industry risks relating to residential mortgage lending, and the need to monitor lending more generally,” the regulator said in a letter to banks this week.

“As part of this monitoring, APRA proposes expanding ARF 223.0 to add additional data items on new loans by debt-to-income ratios, other increases in facility limits and loans to unincorporated private businesses,” it said.

APRA defines debt-to-income ratios as the ratio of the credit limit of all debts held by the borrower, to the borrowers’ gross annual income. If required to provide this data, banks will need to include the credit limit of any debts such as other mortgage lending, personal loans, credit cards, consumer finance, margin lending and any other debts held by the borrower, to any party, to the extent this is known to the bank.

The move comes after the Reserve Bank warned last month that high levels of household debt could “amplify and propagate an economic downturn, declines in housing prices and losses at financial institutions”.

In its April Financial Stability Review, the RBA said that vulnerabilities related to household debt and the housing market in general has increased over the past six months, although noting that the nature of the risks differ across the states.

“Household indebtedness has continued to rise and in Sydney and Melbourne… in inner areas of Brisbane and some other locations, there are ongoing concerns about a future oversupply of apartments given the large volume of apartments still to be completed,” it said.

“In Western Australia and other regions exposed to the mining sector, economic conditions remain challenging and both detached house and apartment prices have fallen as income and population growth have slowed.”

The RBA pointed out that overall, household indebtedness has increased over the past six months, while income growth has remained weak.

[Related: High household debt could amplify impact of housing downturn]

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