Buyers stretching debt levels as property prices rise

The Australian Prudential Regulation Authority says the debt-to-income ratio is rising.

The Announcement:

Australians are increasingly taking on risky levels of debt, new figures from the Australian Prudential Regulation Authority (APRA) have confirmed today.

The value of new home loans with a debt-to-income ratio of six and over climbed to $23.77 billion in March. This is an increase from 16.3 per cent to 19.1 per cent year-on-year as a proportion of new lending.

Debt-to-income ratios of six and over are considered risky by APRA.

Interest-only loans for owner occupiers also increased over the same period from 9.8 per cent to 13.2 per cent as a proportion of new loans. This spike began last quarter as the banks’ mortgage deferral programs began winding up.

Types of loans – as a proportion of all new lending: APRA

March quarter 2021Dec quarter2020March quarter2020
Debt-to-income of 6x or higher19.1%17.3%16.3%
Owner-occupier interest-only loans13.2%12.4%9.8%
Owner-occupier low deposit loans (LVR 95% and over)1.6%2.0%2.3%

Sally Tindall, research director at, said almost 20 per cent of new lending had a debt-to-income ratio that is deemed risky by APRA.

“These new figures confirm people are increasingly stretching themselves to get into a roaring property market,” she said.

“The property boom has egged many buyers to take on more debt than they’d planned to get their slice of the great Australian dream – a property with a patch of grass.

“In two or three years’ time rates are likely to be considerably higher and the bigger the loan the more costly those rate hikes will be.

“People can soften the blow of future rate hikes by getting ahead on their mortgage now. While a lot of Australians are on fixed rates, which typically have caps on extra repayments, they can still chip in some extra money and every dollar counts.

“Based on today’s figures, we don’t expect APRA will step in and put caps on risky lending just yet.

“While the value of loans with risky levels of debt has risen, loans with small deposits of less than 5 per cent have gone down. APRA will be happy with that,” she said.
Tips for peopletaking out a new loan:

  • Look at the amount of debt you’re taking on, not just the monthly mortgage repayments.
  • Factor in future rate rises, particularly if you’re planning to fix your loan.
  • Try and make extra repayments when you can. The more you’ve paid off by the time rates rise, the less the impact will be.
  • If you’re priced out, consider becoming a ‘rent-vestor’ rather than blowing the budget.

APRA quarterly property exposures- new residential loans

March quarter 2021QuarterlychangeYear-on-year change
Total new lending$124.65 billion-$600 million-0.5%$32.51 billion35.3%
New owner-occupier loans$88.49 billion-$390 million-0.4%$24.22 billion37.7%
Investor loans$36.16 billion-$210 million-0.6%$8.28 billion29.7%

Source: RateCity

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