APRA reins in banks over risky mortgages

The Australian Prudential Regulation Authority has reined in four unnamed banks for breaching new "guardrails" designed to limit high-risk mortgage lending.

Appearing before a Senate hearing on Feb. 11, APRA Chair John Lonsdale confirmed that these institutions had exceeded the regulator’s 20% cap on high debt-to-income loans—mortgages where customers borrow more than six times their annual earnings.

With Sydney's median house price hurtling toward $1.9 million, the gap between property values and wages is widening dangerously.

While the average Australian household earns roughly $120,660, a $1 million mortgage now requires an income of at least $166,667 to stay within "safe" DTI territory.

Lonsdale noted that while owner-occupier lending remains steady, investor activity continues to surge, prompting the regulator to watch "credit quality" with increased scrutiny.

The crackdown follows the Reserve Bank of Australia's recent decision to hike the cash rate to 3.85%, further squeezing homeowners who, in Sydney, now spend upwards of 72% of their income on mortgage repayments.

Despite political pressure regarding the government's 5% deposit scheme, Lonsdale remained firm: the higher the loan-to-value ratio, the higher the risk.

APRA has received assurances that the non-compliant banks will immediately adjust their lending flows to meet the required prudential standards.