Commonwealth Bank plays down housing debt fears

While record low rates are spurring an increase in mortgage debt, CBA says trends are stable and not ‘giving us cause for concern’.

Angus Sullivan, Commonwealth Bank's retail banking boss, says the debt levels of mortgage borrowers are not cause for concern.

Commonwealth Bank retail boss Angus Sullivan says record low interest rates are spurring an increase in the debt mortgage borrowers are prepared to take on, but trends are not yet causing concern.

The nation’s biggest home lender was responding to questions about a continuation in rising house prices, despite pandemic lockdowns in Sydney and Melbourne, and concerns from regulators about rising levels of higher debt-to-income lending.

“As rates decrease you do tend to see debt-to-income ratios go up a little bit, that’s just a natural manifestation of a low rate environment,” Mr Sullivan said at a media briefing on Tuesday.

“The trends that we’re seeing on the whole are pretty stable and certainly over the last couple of months there’s nothing happening there that’s giving us cause for concern.

“We do, as is always the case, we keep a close eye to see how the market’s evolving and make sure that our lending standards remain responsible. It’s an area of heightened focus for us, as it always is, and I know one of a lot of public commentary at the moment … we are always making sure that we strike a balanced and responsible position around how and where we lend to customers.”

The banking regulator this month cautioned that many borrowers were taking out larger levels of debt, relative to their income, but it stopped short of saying measures were required to cool housing market activity.

“The issue of concern at present is that there is an increase in high debt-to-income lending, but it’s offset against a number of other metrics which are going in a more positive direction,” said Australian Prudential Regulation Authority chairman Wayne Byres.

“Credit growth is picking up. In the most recent quarter the risk metrics that we look at are sort of a mixed picture, interest-only loans have come down as a share of new lending, high LVR (loan-to-value ratio) loans have come down.”

Jefferies analyst Brian Johnson has highlighted APRA data which showed the proportion of loans being written at a ratio of more than six times the borrower’s income rose to 21.9 per cent in the June quarter, from 19.1 per cent. He said the rise “could pose risks” when the RBA began normalising rates in 2024.

Mr Sullivan said the Covid-19 lockdowns across NSW and Victoria had only caused a “very, very modest slowdown” in housing market interest over the past six weeks, and he expects enthusiasm will return as cities start to emerge from hibernation from next month.

“We do expect the market to remain strong,” Mr Sullivan added.

His comments came as minutes from the Reserve Bank’s latest monthly meeting stressed the central bank was watching whether lending standards were being maintained and “carefully monitoring trends in borrowing”.

“Conditions in the established housing market had remained more robust in recent months compared with the Melbourne lockdown in the second half of 2020,” the RBA said. “Nevertheless, growth in housing prices had slowed a little in Sydney and Melbourne following the rapid increases over the first half of 2021. Housing prices had continued to increase strongly in most other markets.”

The minutes also highlighted easing building approvals data and weaker demand for housing and alterations and additions, after the end of incentives such as the HomeBuilder payments, but said activity remained higher than before the pandemic.

Westpac chief executive Peter King on Tuesday separately expressed concerns about housing affordability as prices continued to rise, albeit at a slower rate in recent months.

“It is stretched, our economics team produces an affordability chart that says right now we’re getting up to peaks that we saw last in 2017-18, early 2000s, late eighties,” he said. “What’s the response? It’s got to be supply, it’s got to be the transfer pricing within the government processes because low interest rates have pushed prices up. It’s a very complex situation … that needs a lot of response across the economy in terms of managing it.”

in August, the latest CoreLogic report showed residential property prices had risen almost 11 times faster than wages growth over the past year.

Australian housing values are 15.8 per cent higher so far this year, and are 18.4 per cent above levels in August 2020.

CBA on Tuesday moved further into adjacent home loan technology services via its venture entity x15, announcing a strategic partnership and minority shareholding in property management company: Different.

The company -founded in 2017 – digitises parts of property management largely for investors to remove and reduce paperwork, administration and manual processes for property owners and renters.

Mr Sullivan said the tie-up did not necessarily reflect CBA’s view that investor home loan demand would pick up, but that the bank wanted to beef up technology services.

“The motivation here is really around customer experience and innovation.”