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Two of Australia’s major banks are cutting back on new lending to more highly indebted borrowers, as financial institutions and regulators prepare for the impact of rising interest rates on mortgage customers.
As money markets bet on a series of interest rate rises this year, ANZ Bank this week said it would no longer accept loan applications from borrowers with total debts more than 7.5 times their income. Previously, the bank was prepared to consider applications from customers with debt-to-income (DTI) ratios of up to nine times.
Regulators have said banks should make sure borrowers have adequate “buffers” as interest rates rise.Credit:Peter Rae
It follows a similar move from National Australia Bank, which this month cut its debt-to-income ratio limit from nine times to eight times.
While both banks’ upper limits are still high, the moves are a sign of lenders seeking to cut their exposure to higher-risk lending as interest rates rise, ending a period of ultra-cheap debt and booming house prices.
The Council of Financial Regulators has also been urging banks to maintain sound lending standards in recent months, following growth in higher-risk lending in the second half of 2021.
An ANZ spokesman said the lender regularly reviewed its lending appetite and policies in response to changes in the economic backdrop. “Given the changing interest rate environment, we recently notified brokers and bankers that from June 6 we will only accept home loan applications where the debt-to-income ratio is less than 7.5,” the spokesman said.
Announcing the move to mortgage brokers, ANZ said people who borrowed a high multiple of their income were “more vulnerable to adverse changes in circumstances or loan conditions.” ANZ made it clear there was no wriggle room in its policy. “There is no appetite to consider applications with a DTI of 7.5 or above,” the notice to brokers said.
NAB executive Kirsten Piper pointed to the bank’s responsible lending obligations, and said it welcomed ongoing consultation with regulators.
“We are committed to lending responsibly and want to ensure customers are able to appropriately manage their repayments, both today and in the future. To do this we work with all customers to understand their individual circumstances and assess applications based on a range of measures,” Piper said.
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