DTI limit could harm some groups more than others
The Australian Prudential Regulation Authority (APRA)’s incoming limits on high-risk home lending run the risk of creating an uneven playing field for borrowers, a major broking association has warned.
Under the new regulatory rules, banks and other authorised deposit-taking institutions (ADIs) will only be able to lend up to 20% of new mortgages at a debt-to-to-income (DTI) ratio of six times or more.
The limits are designed to rein in the breakneck growth of property investor lending, which has recently surged to 40% of the entire mortgage market. APRA worries that this growth is creating vulnerabilities in the system as borrowers take out high-LVR loans that will be difficult to repay.
But David Carson (pictured), regulatory compliance specialist at the Finance Brokers Association of Australia, slammed the incoming rules as “a very blunt tool that has potential to hurt some groups more than others”.
“APRA has effectively decided you can’t live in a home that costs more than six times your current income unless you have a very large deposit.”
Under the rules, banks can still lend out above six-times DTI, but only 20% of their loan book can comprise these loans.
According to mortgage broker Katie Thomas, most borrowers naturally land around 4.5 to five-times income long before a DTI cap becomes relevant, thanks to higher interest rates and robust serviceability measures.
But Carson questioned how the banks will determine who this “lucky 20 per cent” will be.
“This has the very real potential to throttle the capability of the ordinary family borrower to buy a property and realise the benefits of home ownership,” he said. “It is usually the case that those most heavily affected by these actions are the ones closest to the thresholds. In this case, aspiring homeowners with lower household income and smaller deposits.
“APRA says it has data that suggests this might have a bigger impact on investors than homeowners although it is hard to see this being the case. APRA has also said there aren’t many lenders near the 20 per cent threshold, leading them to believe the immediate effects may be limited.
“With legitimate questions about how accurate their modelling and how robust the data is that these new rules are based on, the value of APRA’s new approach is open to question.”
The incoming rules pose “a very real risk that APRA may be putting unnecessary barriers in place for aspiring homeowners”, Carson added.
Others don’t believe the incoming APRA rules go far enough.
Greens spokesperson for finance, housing and homelessness Barbara Pocock called for greater government intervention to curb property investors’ “stampede" of the Australian housing market.
“APRA must use all the tools in their toolbox to rein in investor lending that is exacerbating the housing affordability crisis,” said Pocock. “Investor lending is growing at an unsustainable pace, outstripping loans to owner-occupiers. First-home buyers are being priced out by investors at weekend auctions, house prices are surging, and the banks are profiting handsomely.
Pocock warned that the housing crisis is nearing a point “where it may be impossible to reverse without immediate, decisive action”.
