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APRA asking banks to rein-in LVR

APRA asking banks to rein-in LVR

(2 June 2014 – Australia)  New loans issued to higher-risk home buyers by Aussie banks have hit a two-year high.

In the March quarter the proportion of new mortgages issued with a loan-to-value ratio (LVR) above 80 percent rose from 34.2 percent to 34.8 percent.

It is the highest proportion of new loans flowing to borrowers in this segment since late 2011, the Australian Prudential Regulation Authority (APRA) data shows.

APRA now seeks to reign in riskier lending by some banks, even though overall mortgage lending dropped in the quarter as the property market started to cool off.

In the most risky category - loans with LVRs above 90 percent - the proportion of loans flowing to these borrowers fell below 13.5 percent to its lowest level since late 2011.

Australian authorities have not restricted higher-LVR lending, but have been warning banks to refrain from excessive risk-taking.

Historically, Australian mortgages have featured very low default rates, and the latest round of bank results showed bad debts were at historic lows.

However, APRA and the Reserve Bank of Australia are keen to make sure borrowers and lenders are prepared for an eventual rise in interest rates or a weakening in the economy.

Borrowers with an LVR above 80 percent are generally required to take out mortgage insurance, because this lending is considered a higher risk to banks.

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