Sydney, 28 September, 2006: The Australian Bankers’ Association (ABA) says the official data shows bank housing lending defaults are at very low levels and that while changes have occurred in the housing finance market, bank credit standards remain sound.

The ABA was responding to media reports based on research by Fujitsu/JP Morgan on the Australian Mortgage Industry. The report highlights a number of changes to the mortgage finance market.

It is correct that banks’ loan-to-value (LVR) ratios on new home lending have increased since 2003, but the report clearly shows the current LVR levels are below long-run averages . Indeed, current LVR levels are below those recorded in the second half of the 1990s. 

It is important to note that LVRs for new buyers have moved in a very narrow range over the past 10 years.  Small movements in this data are normal and reflect responses to a large number of variables, including changes in house prices, distribution of new home-buyers in the market, trading up activity, propensity for investment and other market-related variables.

Most banks will now offer low-doc loan products as there is strong demand for these loans from the fast growing self-employed sector. People who are self-employed typically do not have income verification documents. Low-doc loans were pioneered by the non-bank lending sector. For most banks, the proportion of their lending book in low-doc loans is small.

One hundred percent loans are also now available in the mortgage market, provided by some banks, but are more commonly promoted by non-bank lenders. For the banks that have issued 100% loans, they would constitute a very small proportion of their lending portfolio.

The repayment record on low-doc loans remains good. In addition, the inclusion of a proportion of low-doc loans as part of banks’ very diversified portfolios in no way has compromised the robustness of their overall lending books.

There is currently a high level of household debt in Australia. In large part, this reflects the greater ability of average Australians to access finance and invest for their futures. Indeed, the increased levels of household debt has been accompanied by an even larger increase in the value of households’ assets, especially housing, with the result that household net wealth has increased strongly over the past twenty years.

The increase in household debt has also resulted from the increased cost of housing. House prices are high for a range of interrelated reasons affecting demand and supply.

Demand levels for owner occupation and investment housing is driven by the strong desire for people to own and invest in houses, by State and Federal Government taxation incentives, interest rates and lending policies of banks and non-banks.
The supply-side of the market is primarily a factor of State Government land release policies. The limitations put on land release have driven up prices. There is also a limit on the number of houses in desirable locations. This too can increases prices in different areas.
   
For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS