Banks face tougher home loan rules

Banks are facing a move by the Australian Prudential Regulation Authority to crack down on “high-risk” mortgage lending to limit a potential surge in loan defaults. APRA is considering removing the preferred capital treatment given to some home loan products such as low-documentation loans, reverse mortgages and some broker-originated loans. The move will affect Commonwealth Bank and St George Bank the most, both prominent in non-standard lending.

The major banks said they will resist APRA's move as there are no signs of higher defaults on these loans and they'd be at a disadvantage to non-regulated lenders who would not come under the tougher regimen. Demand for non-standard products is booming due to increased numbers of asset-rich retirees and small business owners who can't fulfil the income criteria needed for standard home loans.

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