High-risk loans on the rise as property market heats up
Figures show banks wrote $10.8 billion in higher-risk loans with a loan-to-valuation ratio (LVR) of 90 per cent or more in the quarter - 14.1 per cent of all housing loan approvals. This was a bigger share than in the June quarter, when loans with an LVR of 90 per cent or higher made up 13.5 per cent of approvals.
The chief executive of interest rate comparison service RateCity, Alex Parsons, said the share of buyers borrowing up to 90 per cent or more of a property's value was now at its highest level since 2009.
"It is creeping back up to levels we haven't seen since the global financial crisis," he said.
Mr Parsons said it was critical that people assumed interest rates would rise if they were taking out a new loan.
"With record low interest rates and higher LVRs, if interest rates increase, that's going to have quite a dramatic impact on consumers' ability to repay those mortgages."
The rise in low-deposit lending was revealed in statistics on the $1.2 trillion mortgage market published by the Australian Prudential Regulation Authority on Tuesday.
About 20 per cent of all new loans had an LVR between 80 and 90 per cent, and 40 per cent of new approvals had an LVR of 60 to 80 per cent, it said.
The rise in low-deposit lending came amid a surge in house prices in the Sydney market in particular, as buyers competed fiercely to snap up properties. With banks also jostling to expand their share in an environment of low credit growth, lenders are under pressure not to ease their lending standards.
Frequently Asked Questions about this Article…
High-risk loans, particularly those with a loan-to-valuation ratio (LVR) of 90% or more, are on the rise as the property market heats up. In the September quarter, these loans accounted for 14.1% of all housing loan approvals, up from 13.5% in the previous quarter.
More home buyers are opting for loans with low deposits due to the competitive property market, especially in areas like Sydney, where house prices are surging. Buyers are eager to secure properties, leading to an increase in loans with higher LVRs.
Rising interest rates can significantly impact borrowers with high LVR loans. As interest rates increase, the cost of repaying these mortgages also rises, potentially straining the borrower's financial situation.
About 20% of all new loans have an LVR between 80% and 90%, according to recent statistics from the Australian Prudential Regulation Authority.
Banks are competing to expand their market share in an environment of low credit growth. However, they are under pressure not to ease their lending standards despite the surge in property prices.
Borrowers considering high LVR loans are advised to assume that interest rates will rise in the future. This assumption is crucial for assessing their ability to repay the mortgage if rates increase.
The current level of high LVR loans is at its highest since 2009, a period reminiscent of the global financial crisis, indicating a significant increase in risk-taking among home buyers.
The Australian Prudential Regulation Authority monitors and publishes statistics on the mortgage market, providing insights into trends such as the rise in low-deposit lending and high LVR loans.
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