The alarming figures that could spark another property market downturn

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The alarming figures that could spark another property market plunge as Australian house prices keep surging

  • Almost one in five borrowers owes their bank more than six times what they earn
  • Banking regulator considers high debt-to-income ratio to be a major danger 
  • Rate City said new data would alarm Australian Prudential Regulation Authority
  • Reserve Bank of Australia funding for cheap home loans runs out on June 30 
  • Assistant governor Christopher Kent expected remaining $64billion to be used 

A new set of home borrowing figures reveal an alarming trend that could spark another housing market downturn.

The banking regulator released new data showing a surge in the proportion of borrowers who owe the bank more than six times what they earn, with interest rates at a record low.

During the March quarter of 2021, the share of borrowers with potentially dangerous debt levels climbed to 19.1 per cent, up from 17.3 per cent during the final three months of 2020.

Rate City research director Sally Tindall said these figures would alarm the Australian Prudential Regulation Authority as one in five borrowers were in risky territory.

An alarming set of home borrowing figures could spark another housing market downturn. The banking regulator has released new data showing a surge in the proportion of borrowers who owe the bank more than six times what they earn, with interest rates at a record low. Pictured is a Strathfield auction in Sydney's inner west

An alarming set of home borrowing figures could spark another housing market downturn. The banking regulator has released new data showing a surge in the proportion of borrowers who owe the bank more than six times what they earn, with interest rates at a record low. Pictured is a Strathfield auction in Sydney’s inner west

Major bank fixed-mortgage rates

COMMONWEALTH BANK: One year (2.09 per cent), two years (1.94 per cent), three years (2.19 per cent), four years (2.24 per cent), five years (2.99 per cent)

WESTPAC: One year (1.99 per cent), two years (1.89 per cent), three years (1.98 per cent), four years (2.19 per cent), five years (2.49 per cent)

ANZ: One year (2.04 per cent), two years (2.04 per cent), three years (2.04 per cent), four years (2.24 per cent), five years (2.24 per cent)

 NAB: One year (2.09 per cent), two years (1.89 per cent), three years (1.98 per cent), four years (2.19 per cent), five years (2.49 per cent)

 Source: RateCity.com.au

‘These new figures confirm people are increasingly stretching themselves to get into a roaring property market,’ she said. 

‘The property boom has egged many buyers to take on more debt than they’d planned to get their slice of the great Australian dream – a property with a patch of grass.’

Sydney house prices have surged by more than 15 per cent since January, with property price records last month set in 66 of Australia’s 88 sub markets based on local council areas. 

Three of Australia’s big four banks, with the exception of ANZ, are offering fixed-rate mortgages under 2 per cent.

But that era is fading.

Ms Tindall, a former adviser to Labor prime minister Julia Gillard, said borrowers taking on too much debt would struggle when low fixed-interest rates expired and the Reserve Bank of Australia raised the cash rate from  a record-low 0.1 per cent.

‘In two or three years’ time rates are likely to be considerably higher and the bigger the loan the more costly those rate hikes will be,’ she said.

Westpac and its subsidiaries St George and Bank of Melbourne this week raised fixed two and three-year mortgage rates by 0.1 percentage points.

The Commonwealth Bank last month raised its three-year fixed rate, with nine lenders since also raising their equivalent lending rates, including ING, AMP and Westpac.

APRA keeps a close watch on debt-to-income ratios and previously tightened lending rules, sparking a house price downturn.

In 2017 it acted after five years of strong growth that saw Sydney house prices surge by 68 per cent as Melbourne values went up by 54 per cent.

During the March quarter of 2021, the share of borrowers with potentially dangerous debt levels climbed to 19.1 per cent, up from 17.3 per cent during the final three months of 2020

During the March quarter of 2021, the share of borrowers with potentially dangerous debt levels climbed to 19.1 per cent, up from 17.3 per cent during the final three months of 2020

Their crackdown on interest-only loans caused Sydney’s median house price to plunge by 15 per cent over two years.

The Covid lockdowns of 2020 interrupted the recovery that began in 2019 but since January 2021, Sydney’s median house price has surged by 15.1 per cent to $1.186million.  

In early 2021, the proportion of Australian owner-occupiers with interest-only loans stood at 13.2 per cent, up from 12.4 per cent in the December quarter. 

Nonetheless, Ms Tindall said APRA was likely to wait a little longer before acting this time.

‘Based on today’s figures, we don’t expect APRA will step in and put caps on risky lending just yet,’ she said.

Australia’s banks and major lenders have until June 30 to access the remaining $64billion from the Reserve Bank’s Term Funding Facility.

Australia's banks and major lenders have until June 30 to access the remaining $64billion from the Reserve Bank's Term Funding Facility. This pool has provided $145billion in financing for cheap loans since the start of the pandemic in March 2020. Pictured is a Sydney house under construction

Australia’s banks and major lenders have until June 30 to access the remaining $64billion from the Reserve Bank’s Term Funding Facility. This pool has provided $145billion in financing for cheap loans since the start of the pandemic in March 2020. Pictured is a Sydney house under construction

This pool has provided $145 billion in financing for cheap loans since the start of the pandemic in March 2020.

Christopher Kent, an assistant governor of the central bank, said the RBA expected the banks to come forward for the remaining funding.

‘We expect that the bulk of available funding will be taken up because the cost of the facility remains well below the cost of similar funding available in the market,’ he said.

‘Most banks are expected to take up most or all of their remaining allowances.’

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