APRA just put the brakes on mortgage lending – some of ASX stocks could be affected

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It may be a little more difficult to get a home loan thanks to the increase in the maintenance margin by APRA.

When COVID-19 first erupted, interest rates were cut to record highs, which helped trigger significant growth in loans, especially loans to first-time homebuyers.

But in recent months, concerns have been expressed about the impact on housing affordability and the ability of borrowers to repay when interest rates rise.

APRA increases maintenance buffer

Today APRA – the Australian Prudential Regulation Authority – finally acted.

Specifically, he has told major banks that he expects him to increase the maintenance buffer from 2.5% to 3% from the end of October.

The sustainability cushion assesses the ability of the new borrower to repay their loan if interest rates rise or if there is a change in their personal circumstances.

This is a number added to the rate of an existing mortgage.

Previously, banks rated mortgage applicants by seeing if they could still pay off a mortgage if the loan rate was 2.5% higher. Now they are going to test it to a stricter standard – 3% more.

“By taking action, APRA is working to ensure that the financial system remains secure and that banks lend to borrowers who can afford the level of debt they take on, both now and in the future. ‘future,’ said Wayne Byres, president of APRA.

“While the banking system is well capitalized and lending standards have been broadly maintained, the increase in the share of heavily indebted borrowers and indebtedness in the household sector in general means that medium-term risks for the financial stability accumulate. “

Byres noted that more than one in five loans approved in the June quarter was more than 6 times the borrower’s income.

As income growth was not supposed to match credit growth, action was needed.

Although he acknowledged that the banking sector was well capitalized and that lending standards were sound, high levels of indebtedness represented a major risk to the financial system.

“With the economy set to rebound as blockages begin to be lifted across the country, the balance of risks is such that higher service standards are warranted,” he said.

More regulations to come

Additionally, Byres said APRA may not have finished taking action.

In a letter to banks, Byres also called on banks to “review their risk appetite for loans with high debt-to-income ratios.”

He also pledged to continue to monitor the growth of high debt versus income loans.

“If the concentrations of these loans continue to increase, APRA will consider the need for further macroprudential measures,” he said.

On the two previous occasions, a macroprudential policy has been implemented – 2014 and 2017 – a certain heat has come out of the real estate market.

Analysts will therefore be watching what happens in the coming months as annual house price increases remain near record highs of around 20%.

Which ASX stocks might be affected by the increase in the APRA service buffer?

While many new loan securities have gone public since COVID-19, most specialize in personal loans.

Two of the exemptions Freedom (ASX: LFG) and Pepper (ASX: PPM) and they join the actions of the 4 big banks as well as Resimac (ASX: RMC) as businesses likely to be affected.

Morningstar analyst Nathan Zaia said last week that the extent to which the bank would be affected would depend on the size of mortgage loans from incorporated banks as well as on regulations.

ABC (ASX: ABC) and Westpac (ASX: WBC) would be more affected, real estate loans representing around 70% of their loan portfolio, while for ANZ (ASX: ANZ) and NAB (ASX: NAB) it was only 60%.

Talk with Storekeeper, he said large banks would be affected by ceilings on lending to investors as well as high loan-to-value ratios.

“Big banks tend to do more in the investor market and on higher, more delicate types of loans than smaller regional lenders,” Zaia explained.

Nonetheless, he also said a delayed economic recovery was a greater threat to banks.

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