High risk LVR lending remains high

by Calida Smylie27 Feb 2014
More than one third of all loans at the end of last year had a loan to value ratio of greater than 80%, the latest Australian Prudential Regulation Authority data shows.

APRA’s domestic Australian Authorised Deposit-taking Institutions property exposure for the December 2013 quarter shows 34.4% of all new loans had an LVR of more than 80%, down slightly from 34.6% over the September 2013 quarter and the same proportion as in the December 2012 quarter. 

Commentator Cameron Kusher, senior research analyst at RP Data, called it “intriguing” that the proportion of higher LVR lending remains high, when these loans are “inherently more risky”. 

Only 13.6% of total lending over the last quarter was for a LVR of more than 90% compared to 20.8% on an LVR of between 80% and 90%. 

“These mortgages are typically insured so the risk to the ADI itself is lessened, however it doesn’t necessarily reduce the overall market risk if we see arrears and default levels climb in the future,” Kusher said.

Major banks accounted for almost all the increase in low deposit home loans over the last year, which could be seen a sign of willingness to stretch credit criteria to maintain volume growth.

The high proportion of loans with an LVR of more than 80% is topical, after the Reserve Bank of New Zealand in October reduced the amount NZ banks can lend to higher risk mortgages, with only 10% of total lending for loans with an LVR of more than 80%.

MFAA CEO Phil Naylor said while regulators here are “certainly aware” of the issue, he does not believe Australia needs to follow NZ’s lead to curtail loan amounts to risky potential mortgagees.

“We’ve seen no indication the current Australian LVR profile is giving [APRA] such concern.”

The NZ position has the effect of punishing the whole market for some "apparent overheating" in the Auckland market, he said.


  • by Really? 27/02/2014 10:21:00 AM

    Well he's a 'commentator', so clearly would have more idea than those of us in the industry.
    Why not convert to the Indian method of making borrowers have 90% deposit - then the LVR's would be a low risk 10%.
    Better still, why not ban first home buyers altogether, less risk again.

  • by Low Risker 27/02/2014 11:06:51 AM

    Really? I Agree with your comments and we could also lower the risk by only lending to people can provide a guaranteed income, guaranteed to stay together, guaranteed to stay healthy, for the life of the loan. This will also lower risk. It's interesting how a lower LVR reduces the risk of arrears and defaults, I have always see these being caused by lack of income or cash flow and not by higher LVRs??

  • by Broker 28/02/2014 8:11:35 AM

    The only reason low lvr loans default less IMO is because people can sell or refinance out of trouble. Not much correlation to credit worthiness.