June 9, 2020 / 6:24 AM / a month ago

Australian banks doubled high leverage mortgages as pandemic hit

SYDNEY, June 9 (Reuters) - Australian banks doubled their lending to the most leveraged home owners in the March quarter, just as the country shut its economy due to the COVID-19 pandemic, data shows, putting them at risk of acute mortgage stress if prices fall as predicted.

Figures released on Tuesday by the banking regulator show new home loans to borrowers with deposits of 5% or less of their homes’ value increased A$1.8 billion ($1.26 billion) in the three months to March, a 52.% jump from the $1.2 billion the banks lent to the most leveraged cohort a year before.

While the A$19.5 billion in highly leveraged mortgages represent a small proportion of the A$1.73 trillion home loan market, a 10% decline in home prices expected by economists could put the value of those properties below their loans.

The Australian Prudential Regulation Authority (APRA) on Tuesday said it expects to see a shift in new lending away from higher loan to value ratios (LVR), as unemployment and impaired loans continues to rise while the housing market struggles.

Since the government shut parts of the Australian economy in March to stop the spread of the novel coronavirus, the loan repayments of about 9.5% of all Australian mortgages have been deferred.

The government has pledged over A$160 billion ($112.29 billion) in fiscal stimulus, including billions for an employee subsidy, expiring in September, that has helped limit job cuts in hard hit sectors.

Still, Australia and New Zealand Banking Group, the country’s fourth largest bank, last week said that about 14% of retail customers had applied for a home loan deferral, and 7% were not receiving any salary income.

Economists and analysts expect the extent of the fall in house prices and possible loan losses at banks will largely depend on further government support and stimulus beyond September.

$1 = 1.4306 Australian dollars Reporting by Paulina Duran in Sydney; Editing by Shri Navaratnam

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