Following APRA's warning to banks not to lower lending standards, the head of the Australian Bankers' Association - lobby group for the banking sector - has...

Following APRA's warning to banks not to lower lending standards, the head of the Australian Bankers' Association - lobby group for the banking sector - has warned against imposing mortgage limits as this would push first home buyers out of the market. APRA released data last month that showed high-risk mortgage lending is on the rise. Loans of >90% loan-to-value ratio (LVR) have risen from 10% of total issuance in 2011 to around 13.5% currently, with loans >80% LVR now accounting for around 33% of the total. More shockingly, a whopping 39% of new home loans issued by banks over the June quarter were interest-only. High LVRs significantly raise the probability of financial instability in the event that interest rates were to ever rise or the economy deteriorates as the mining boom unwinds. Macro-prudential controls would be effective in curbing higher risk mortgage lending and house price growth. (VIEW LINK)