APRA: risky debt still on the rise

APRA’s Authorized Depository Institution (ADI) Asset Exposure Report for the December 2021 quarter found that 24.4% of new mortgages had a debt-to-income ratio of six times or more – a up from 23.8% in the previous quarter and 17.3% last year.

For reference, APRA considers debt-to-income ratios of six or more to be of concern.

This coincides with new data released by the Australian Bureau of Statistics (ABS) showing residential property prices have risen 23.7% from 2021 figures, the largest annual increase on record.

Additionally, the APRA report builds on the latest data from CoreLogic indicating that house price growth will begin to slow in 2022.

Sally Tindall, Head of Research at RateCity, said: “It’s no surprise that subprime lending has risen at the same time house prices have soared. [It’s] the price many Australians had to pay to enter an overheated property market.

To help mitigate the further increase in debt ratios, APRA has already raised the rate at which banks are testing mortgages from 2.5% to 3% on November 1, 2021.

APRA’s updated functionality test went into effect in the December quarter, but for customers who were pre-approved but had not yet purchased a home by November 1, they were still evaluated using the previous feature buffer.

Looking ahead, Ms Tindall predicted that “with property prices already starting to cool and the RBA poised to raise interest rates, APRA is unlikely to implement further measures”.

“In fact, after a series of RBA interest rate hikes, we could see APRA reduce its service cushion to 2.5%,” she added.

Ms Tindall was of the view that most Australians who have mortgages are able to cope with anticipated increases in interest rates.

“Mortgage holders have a huge $231.68 billion in clearing accounts, which will provide many with a decent buffer when rates rise,” she explained.

According to RateCity’s data analysis, to avoid taking on a risky loan, an annual household income of $188,331 is needed to buy a median priced home in Sydney and $133,336 in Melbourne.

Annual income required to have a debt ratio below 6x

Capital city

Median house price (February 2022)

Amount of the loan

(assumes 20% down payment)

Annual income required to have debt to income less than 6x

















PerthPerth, TAS Perth, WA
















Source: RateCity.com.au, CoreLogic. Median house prices are from CoreLogic February 2022, released March 1, 2022. A debt-to-income ratio of 5.99 is assumed. LMI costs not included.

To avoid getting stuck in risky debt, here’s RateCity’s advice when taking out a new loan:

  • Consider future rate hikes. The bank will stress test your loan, but you should work out the numbers yourself so you know how much you will have to pay.
  • Strive to move forward on your debt. The less you owe when interest rates rise, the less impact you will have.
  • Instead of exceeding your budget, look for alternatives if your price is exceeded. Become a tenant, buy as a family or look for a less expensive property.

About the Author

Noemi Pamintuan-jara

Noemi is a journalist for Smart Property Investment and Real Estate Business. She has extensive writing experience for the business, health and education sectors. Noemi is a contributing author of a summary published by the American Public Health Association and Best Practices in Emergency Pedagogical Methods in Germany. She shares copyright ownership of an instructional video for pharmacists when communicating with deaf patients. She attended De La Salle University where she obtained a double degree in psychology and marketing… Read more

APRA: risky debt still on the rise

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Last update: March 16, 2022

Posted: March 17, 2022