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In a recent letter to all Australian ADIs entitled Embedding Sound Residential Lending Practices, APRA indicated that lenders need to limit lending at very high debt-to-income levels.
“APRA expects ADIs to commit to developing internal risk appetite limits on the proportion of new lending at very high debt-to-income levels (where debt is greater than six times a borrower’s income) and policy limits on maximum debt-to-income levels for individual borrowers,” the regulator said.
CoreLogic analyst Cameron Kusher said that this doesn’t suggest that there is any hard limit on loan-to-income (LTI) ratios above six times, but it does suggest that there will be less appetite for mortgages which are in excess of six times incomes.
Utilising gross household income data that has been modelled by the Australian National University (ANU) Centre for Social Research and Methods, CoreLogic considered what the impact of limiting debt-to-income ratios to six times would be.
“Six times the median gross household income in Sydney is calculated at $688,764. The median house value in Sydney is $1,058,306 and the median unit value is $774,124,” Mr Kusher said.
“What this means is that if a buyer wanted to purchase the median house under this scenario, they would need a deposit of $369,542 and for the median unit they’d need a deposit of $85,360.”
Mr Kusher noted that the high median value relative to incomes implies the typical Sydney household would probably be targeting properties across the lower quartile of values rather than around the middle of the valuation range.