Homes could be lost in property fall: APRA

The Australian Prudential Regulation Authority says the mortgage industry could weather a 30 per cent property price drop but that such a shakeout could result in 3.5 per cent of home buyers, or more than 100,000 people, defaulting on their mortgage payments. Those most at risk are borrowers only two to four years into their loans with high loan-to-valuation ratios. Loan defaults have averaged just 0.12 per cent a year in recent decades. APRA also found that 90 per cent of lenders could withstand a loan default rate above 3.5 per cent without breaching minimum capital requirements.

APRA regulates the prudential standards of Australian businesses and has responded to fears of a property bubble with a year-long investigation into the lending exposure of 120 home lenders around Australia. In the past five years, the amount outstanding in housing loans has more than doubled to $410 billion and property prices in the capital cities have risen 80 per cent on average. APRA chief John Laker warned that the residential property boom “cannot be maintained”. A 3.5 per cent default rate would translate into a loss rate of about 1 per cent of the value of housing loan portfolios for the group, Dr Laker said.