Subsistence lending on APRA radar

The Australian Prudential Regulation Authority said it was undertaking a review of how bank, building societies and credit unions assess the ability of their customers to service their mortgage payments, with special attention to what are called “income surplus” models. APRA said these models “operate on the basis of the level ‘subsistence' spending. Put another way, many lenders now assume that borrowers will accept near or actual subsistence levels of family consumption in order to maintain mortgage payments.” APRA's analysis to date “shows a wide dispersion in maximum loan amounts across institutions. For example, the maximum owner-occupied loan ADIs are prepared to offer a couple with a gross annual income of $150,000 and one child ranges from $300,000 to almost $600,000.

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