Bank lending to highly geared mortgage borrowers will be capped by the nation’s financial regulator, which has warned of growing risks in the property market.
The Australian Prudential Regulation Authority (APRA) on Thursday morning said it would limit the proportion of loans made by banks to people whose mortgage would be at least six times their income.
APRA chair John Lonsdale said the regulator would not wait for housing-related vulnerabilities to build up before taking action.Credit: Bloomberg
From February 1, the new limits will mean no more than 20 per cent of banks’ new mortgage lending will be available to customers borrowing six times their income, or more. The restrictions will apply to both housing investors and owner-occupiers.
APRA chair John Lonsdale said the authority was not prepared to wait for housing-related vulnerabilities to build up in the financial sector.
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“At this point, the signs of a build-up in risks are chiefly concentrated in high debt-to-income lending, especially to investors,” he said.
“By activating a debt-to-income limit now, APRA aims to pre-emptively contain risks building up from this type of lending and strengthen banking and household sector resilience.”
The move excludes bridging loans for owner-occupiers and loans for the purchase or construction of new homes.
The action from APRA follows a period of strong house price growth, and warnings from the regulator about a rise in riskier lending, including high debt-to-income (DTI) loans.
