CoreLogic: regulators aren’t about to rein-in risky lending

CoreLogic’s head of research, Eliza Owen, agrees that Australia’s financial regulators are unlikely to act quickly to rein-in ‘risky’ mortgage lending via macroprudential tightening.

First, Owen notes that the proportion of interest-only lending remains at low levels (19.2% in December 2020), less than half the mid-2015 peak (45.6%):

Interest-only mortgage lending in Australia

Interest-only mortgage lending is running way below pre-2017 levels.

Second, while the proportion of mortgages made with debt to income (DTI) ratios above 6-times has hit a two-year high, the Australian Prudential Regulatory Authority (APRA) argues the share of debt to income lending was “within its historical average”:

Australian mortgage debt-to-income ratios

Australian mortgage debt-to-income ratios hit a series high in Q4 2020.

However, Owen notes that continued price appreciation across Sydney and Melbourne could push the DTI ratio higher, given how expensive these markets already are:

This is because the house price to income ratio across Sydney has averaged around 8.5 since 2013, and has averaged 7.5 across Melbourne since 2015.

Third, the percentage of mortgages originated with a loan-to-value ratio (LVR) above 80% has risen across both owner-occupiers and investors:

Australian mortgages above 80% LVR

The share of mortgages originated above 80% LVR has risen.

Nevertheless, Elisa Owen does not believe that regulators will take action to curb riskier mortgage lending:

The latest data from APRA indicates there is no blow out of risk in mortgage lending… The publication follows a recent address from RBA governor Phillip Lowe, who reiterated the strategy of maintaining a low cash rate for years to come, which is likely to continue supporting housing demand…

While APRA’s December quarter statistics show a trend towards ‘riskier’ styles of lending, the magnitude is not likely to be large enough to trigger a regulatory response; but if this trend continues, or indeed accelerates, it becomes more likely we will see a regulatory intervention aimed at curbing financial stability risks related to the housing sector.

My view is that the regulators are unlikely to act anytime soon because the mortgage/property boom is being driven by owner-occupiers (including first home buyers), which makes macro-prudential intervention inherently more difficult than clamping down on speculative investors.

Australian mortgage credit growth also remains near historical lows, because owners of existing mortgages are repaying their loans quickly, offsetting the uptake of new mortgages:

Australian mortgage credit growth is near record lows, making macro-prudential intervention more difficult.

Moreover, actual loan repayments (both principal and interest) are tracking at their lowest level in 18 years, according to the Bank for International Settlements:

Australian household debt repayments

The proportion of household disposable income used for debt repayments is the lowest since 2003.

In short, financial stability risks have not increased sufficiently to push Australia’s financial regulators to imposing macroprudential tightening.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. HELLO.
    Guarantor loans are the marginal buyer and won’t appear as lending at >80% LVR. Kill them. (and provide additional targetted places in the FHLDS if you must)

  2. happy valleyMEMBER

    Our regulators, whose core MO is self-interest, seemingly couldn’t give a rat’s as long house prices are booming and if they further exacerbate the social divide between the haves and the have nots, so be it for collateral damage.

  3. Sub prime credit exists because there is demand from buyers seeking increased yield as part of a broader portfolio.

  4. mikef179MEMBER

    SO speculative investors basically come in first and force the prices of houses up. Then when prices are at super-high levels FHB’s are encouraged to come in at those levels and buy when many investors aren’t interested any more.

    It reminds me of that classic bubble graph, where the investors come in early and the public jumps in right at the top.

  5. Bank data be dodgy. How many loans are chopped into pieces behind the scenes? A mortgage is actually several different loans/facilities. Australian banks lie.