Housing lending may be cheap, but regulators argue it is not yet risky

New data suggests changes to mortgage lending rules in the near future are unlikely, despite rapidly rising home values.

Recent data from the Australian Prudential Regulation Authority (APRA) suggests that while the proportion of loan originations that could be ‘higher risk’ showed a slight increase through the December quarter, the regulator saw no evidence of a “material relaxation in lending standards”.

Indicators of lending standards are being watched carefully.

Borrowing for the purchase of residential property hit a record $28.8 billion in January 2021, up 34.8% from the decade average. This has also contributed to housing values reaching a new record high.

So far however, the December 2020 quarter has not shown any major deterioration in lending standards, suggesting there is no need for interventions in the form of tighter credit policies.

The December 2020 quarter is of particular importance, because it marks a positive turn in Sydney and Melbourne dwelling values coming out of COVID-related restrictions.

Select metrics from the publication are discussed below.

The share of interest only loans as a portion of new home loans ticked up to 19.2%

The portion of new mortgages lent on interest only terms hit 19.2% in the December 2020 quarter, up from 18.5% in the previous quarter.

This is not far from the 18.7% average seen over the past two years. It is also well below the record high of 45.6%, which was recorded over the June 2015 quarter.

However, it is worth noting there have been improvements to collection of banking statistics, and the historic series is not directly comparable with recent data.