APRA flags rise in high-LVR loans under 5% scheme

He said APRA was observing more highly leveraged loans among owner‑occupiers entering the market under the guarantee.

“So we’re seeing that flow through, and we are seeing an uptick in high LVR lending, to some extent, among first home buyers,” Beckett said.

Yet Beckett stressed that the pattern was not a surprise, given the scheme was explicitly designed to lower deposit hurdles for would‑be buyers.

The federal initiative allows eligible first home purchasers to buy with deposits from 5 per cent and avoid lenders mortgage insurance with the government guaranteeing up to 15 per cent of the loan.

“But we’d expect that, because that’s the purpose of the scheme, in some ways, there’s always going to be some bring forward,” he continued.

“We’ll see what happens in the longer term.”

APRA’s property exposure statistics for the December quarter revealed that banks approved a record wave of loans to buyers putting down deposits of 5 per cent or less.

Banks wrote $5.4 billion in new owner‑occupier loans, with deposits of 5 per cent or less in the three months to December – an increase of $2.1 billion, or 63 per cent, on the previous quarter.

This is the sharpest rise since APRA began publishing the series in 2019.

Brokers have also told The Adviser that a growing number of scheme clients have discovered that their borrowing power had shrunk between initial conversations late last year and formal approval in March.

However, Beckett concluded that the system was absorbing the expansion in low‑deposit lending without signs of stress.

“At the moment, we’ve seen very low, non-performing loans in the household sector,” he said.

APRA focus on serviceability, capital, and concentrations

While acknowledging the lift in leverage, Beckett framed APRA’s priority as ensuring that banks participating in the scheme continue to lend prudently rather than chasing volume.

“I think, from APRA’s perspective, our main issue with this is to ensure that banks are lending prudently as part of the scheme,” he said.

Beckett also underscored that banks could not rely entirely on wholesale funding to support the lending and needed to commit their own equity.

Under APRA’s capital framework, authorised deposit‑taking institutions are required to hold shareholder funds against housing exposures and to track high‑LVR cohorts closely.

“They have the risk management and risk appetite, so we get banks to report at 95 per cent LVR, even if part of it is guaranteed, so we’re still sort of checking that it’s within the banks’ risk appetite, and they’re not developing concentrated exposures in particular areas,” he said.

While APRA has noted that the government guarantees reduce risk weights on eligible loans, it still expects institutions to hold adequate capital.

“I think the final part of that is the credit enhancement for banks that comes from the up to 15 per cent guarantee that the government scheme provides,” he said.

“So from our perspective, it’s really about ensuring that banks are lending prudently and are able to absorb any losses.”

3% buffer stays as protection against rate shocks

Asked whether APRA would reassess the 3-percentage-point serviceability buffer in light of conditions facing first home buyers, Beckett indicated no specific review had been launched.

“I’m not aware of any assessment,” he said of a scheme‑specific review.

“I know we look at our macro prudential settings around every six months, and we put out a report. The main role of the 3 per cent serviceability buffer is to ensure that borrowers are resilient to shocks and that a potential rapid increase in interest rates doesn’t propagate a series of defaults.”

Beckett added that APRA’s chair had already signalled the regulator was comfortable with the current setting and described it as a prudent safeguard amid high household debt.

Shadow housing minister Andrew Bragg also pressed Beckett on whether APRA considered a 95 per cent LVR mortgage inherently dangerous.

In response, he rejected a simple label, saying that risk depended on whether the loan was secured and affordable.

“No, it depends on what you mean by risk. The key thing is that the loan is well secured, and the person can service the debt, and what will happen is that will amortise over time, and people will build up equity, and so that will go down,” Beckett said.

[Related: 5% deposit turbocharges cheaper homes as price gap widens]