APRA chief Wayne Byers warns on high household debt levels

Rod Myer
May 31, 2017, updated May 31, 2017

The boss of Australia’s financial regulator has joined the list of commentators worried about Australia’s high level of mortgage debt.

Wayne Byers, chairman of the Australian Prudential Regulation Authority, has told a Senate Estimates committee that it represents “one of our higher risk factors at present”.

“We have never hidden behind the fact that we are in an environment of heightened risk. Prices are high, household debt is high, interest rates are at historical lows, income growth is low, competitive pressure is strong in the housing market,” he warned, the Australian Financial Review has reported.

“So everyone has to be fairly careful about how they operate.”

Mr Byers commented on the move by high-profile fund manager Altair Asset Management to liquidate its Australian share funds on concerns of an impending property market “calamity”, saying it was an “extreme response to the circumstances”.

But he described the Australian financial system as “fundamentally sound”.

APRA’s concerns about property prices have seen it crank up restrictions on lending to high-risk investors which appears to be having the desired effect.

APRA data released this week showed that high loan-to-value-ratio (LVR) lending had fallen. High LVR loans allow investors to buy property on low deposits and regulators have seen it as a danger to financial stability.

The data showed that over the March 2017 quarter, mortgage lending by Australian lenders was at its lowest point in a year, standing at $89.257 billion for the quarter.

Property analysts CoreLogic observed that “over the quarter 65 per cent of lending was to owner occupiers ($58.009 billion) with the remaining 35 per cent ($31.248 billion) to investors. The value of lending to owner occupiers was 3.9 per cent higher year-on-year while investor lending was 21.7 per cent higher”.

The massive kick-up in investor loans followed a recovery from the heavy slump in that category in 2016 after APRA and the Reserve Bank of Australia forced banks to reduce their exposures to investors generally.

Low documentation ($377 million), non-standard ($142 million) and outside-of-serviceability loans ($1.461 billion) accounted for a cumulative 2.2 per cent of new lending over the quarter.

High LVR loans (above 90 per cent) were at their lowest level since March 2011, CoreLogic said.

The data showed the average outstanding mortgage balance at $259,400 at the end of March 2017 which was 0.8 per cent higher over the quarter and 3.9 per cent higher over the year.

For loans with an offset facility, the average outstanding balance was $314,100, $346,100 for interest-only mortgages, $100,100 for reverse mortgages, $193,100 for low-documentation loans and $185,600 for other non-standard loans.