APRA’s “surprising” numbers in mortgages

  • By Christine St Anne

The prudential regulator reported an uptick in lending in its data for the quarter ending June, underpinned by refinancing activity, 

In a statement, the prudential regulator said that the banking system remained resilient in the quarter. 

“Despite ongoing challenges to profitability, bank financial positions remain sound due to strong capital and liquidity levels, support through various policy measures and signs of reduced risk appetite in residential mortgage lending,” APRA said.

And while there was some degradation of asset quality as a result of COVID-19, APRA note that the full scale of this impact will only be seen in the coming quarters. 

The APRA revealed a pickup in home loan activity

Source: APRA 

CoreLogic head of researh Tim Lawless was “surprised on the upside by these numbers”

For Lawless, new lending over the quarter was extremely active and supported by a lot of refinancing activity. 

This was already signalled in the ABS data which saw refinancing actively increase to record highs. 

“Borrowers are really taking advantage of such low interest rates and shopping around to get the best deals,” Lawless added.

Another key positive in the APRA number for Lawless was the strong pick up in third party lending further highlighting the crucial role of the broker. 

“It is also reflective of the strong level of refinancing activity. It also highlights that that brokers are really well-placed to find the best deals for borrowers,” he said. 

The data is also consistent with CoreLogic’s report for the MFAA which also showed that the market share for mortgage brokers has been consistently rising over the past few quarters. 

“Even though we have seen mortgage brokers and lenders for that matter a little less certain about the lending environment, it is clear there is still a lot of liquidity in the system.”

Importantly, Lawless also noted that lending to borrowers with high loan-to-value-ratios eased, highlighting that lenders are becoming risk averse. Loans on debt to income ratio is greater than six times, reduced by 16.1 per cent. 

“Clearly the banks have less appetite for risk as we are seeing the proportion of high debt to income ratios fall over the June quarter.

“With fewer interest only loans being written and fewer loans written on higher LVRs proves that the banks are treating risk very seriously.

“They are really trying to reduce their exposure to borrowers who may be overly leveraged or borrowers who may not have the ability to repay their loans over the long term. 

“That's totally understandable considering that uncertainty.”

He added that the numbers also reflect that lenders are looking at geographies, industries and occupations much more closely as they assess their risk in the medium to long-term. 

Going forward, however, Lawless does not expect the momentum to continue.

The capital treatment of mortgage deferrals has marred the APRA data, which the prudential regulator recognised as noted earlier. 

Risks will emerge as banks do begin their six month check-in with borrowers on deferrals

“The elevated levels of refinancing activity will probably persist considering interest rates are going to remain so low. 

“But the recent surge we have seen is more of a reflection of the cash rate coming down to such low levels and then being passed through to mortgage rates.”