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Bank lowers DTI cap for FHLDS loans

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Reporter 5 minute read

A non-major bank has announced that it will reduce the maximum debt-to-income ratio for loans backed by the government’s First Home Loan Deposit Scheme.

MyState Bank has announced changes to its serviceability policy for mortgages backed by the federal government’s First Home Loan Deposit Scheme (FHLDS), which commenced its second phase in July.

Effective for all FHLDS applications submitted from Monday, 17 August, the debt-to-income (DTI) ratio – total debts divided by gross income – will be capped at 6.

Applicants will also be required to have a minimum monthly surplus of $50 or $200 for those with a loan-to-value ratio exceeding 90 per cent.


MyState is the latest of a number of lenders to adjust its DTI policy, including ANZ, BOQ and Teachers Mutual Bank Ltd.

These changes have come amid mounting credit quality concerns off the back of the COVID-19 crisis.

AMP Capital chief economist Shane Oliver has warned that recent adjustments to serviceability requirements could have unintended consequences.

Mr Oliver explained that tighter lending standards could further weigh on demand for housing, already subdued as a result of income loss and immigration restrictions.  

“If you go back to the time of the GFC in the United States, there were very [loose] lending standards up until 2006-2007, and then the tightening in lending standards that occurred once prices started to fall, exacerbated the downswing,” he told The Adviser’s sister brand, Mortgage Business.


“It has the very effect they’re trying to avoid.

“That could well happen here, that tightening by the banks exacerbates the downswing and then ultimately causes more weaknesses in the economy, which then [leads] to more forced selling of houses and puts more downward pressure on prices.”

He concluded: “If the banks tighten their lending standards, you end up with a double whammy in terms of reduced demand.”

COVID-induced weakness in demand for housing has already triggered falls in national home values.  

According to the latest data from property research group CoreLogic, national home values have fallen 1.6 per cent over the three months to July, led by combined cumulative declines of 5.3 per cent in Sydney and Melbourne.

[Related: Bank ceases lending to high DTI borrowers]

Bank lowers DTI cap for FHLDS loans
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