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Almost 90% of new home loans are under 6 times income

Quarterly banking data from the prudential regulator shows the impact that rising rates have had on new residential mortgage activity.

On Tuesday (14 March) APRA released the Quarterly Authorised Deposit-taking Institution (ADI) Performance and the Quarterly ADI Property Exposure publications for the quarter ended 31 December 2022.

The total value of new residential loans funded in the December quarter 2022 was $150 billion, down 12.2 per cent from the $171 billion funded in the three months to 31 December 2021.

The data also showed significant decline in new mortgages with a high debt-to-income ratio. Only 11 per cent of loans are written on six times income or over in 2022, down 13.3 percentage points from 24.3 in the December quarter of 2021.

Eliza Owen, head of research at CoreLogic Australia, said the sharp drop-off in lending at high debt-to-income ratios and loan-to-income ratios coincides with the bulk of the current rate-hiking cycle flowing through to prospective borrowers, who has limited borrowing capacity.

“Both of these ratios represent record lows, though on a relatively short back series to March 2019,” she said.

Almost one in five new loans (19.2 per cent) were interest-only, with no change on the 2021 quarter.

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“ADIs’ profitability, asset quality, capital and liquidity positions remain strong. Capital adequacy ratios were broadly stable over the year. The non-performing loan ratio continued to improve, indicating that rising interest rates are yet to have a material impact on asset quality,” APRA said.

“New housing lending activity continued to decline from the peaks observed during the pandemic, influenced by increases in the cash rate. However, lending volume is still considerably above pre-pandemic levels. The general risk profile for new residential mortgage lending is improving, as the proportion of new lending at either high loan-to-valuation ratios or at high debt-to-income ratios continues to decline.”

Latest ABS lending indicators data has revealed a further decrease in the value of new loan commitments for January 2023.

Research conducted by Comparator for the Mortgage and Finance Association of Australia (MFAA) showed mortgage brokers settled $89.58 billion in the three months to 31 December 2022. Based on APRA’s data, this accounts for 59.7 per cent. 

The value of new loan commitments for housing fell 5.3 per cent to $22.1 billion in January 2023, according to the Australian Bureau of Statistics (ABS).

[Related: New loan commitments for housing drop 5.3%: ABS]

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