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Golden mortgage rule 1 in 4 homeowners are breaking

Australian $100 notes stacked on top of each other and a sold sign on a property.
Almost a quarter of Aussie mortgages are considered 'risky'. (Source: Getty)

Australia’s booming property market has put homeowners on the backfoot when it comes to paying off their mortgage.

Almost one in four new mortgages are considered ‘risky’, according to new data released by the Australian Prudential Regulation Authority (APRA).

APRA’s ADI property exposure report for the December 2021 quarter found 24.4 per cent of new mortgages had a debt-to-income ratio of six times or more, in dollar terms.

This is up from 23.8 per cent in the September quarter. A year ago, it was just 17.3 per cent.

Debt-to-income ratios of six and over are considered risky by APRA.

In fact, analysis by RateCity found that to buy a median-priced house in Sydney, you would need a household income of $188,331 to avoid taking on a risky loan.

In Melbourne, the income needed to have a debt-to-income ratio of less than six was $133,336 a year.

Property prices peak

This comes after new ABS data found residential property prices recorded their biggest annual rise on record, up 23.7 per cent in 2021.

However, the latest CoreLogic data shows growth in property prices is starting to cool in 2022.

In response to rising debt-to-income levels, APRA increased the rate at which banks stress-test mortgages, from 2.5 per cent to 3 per cent on 1 November, 2021.

“It’s no surprise risky lending rose at the same time property prices skyrocketed,” RateCity.com.au research director Sally Tindall said.

“Almost one in four mortgages settled in the December quarter had risky levels of debt compared to their household incomes - the price many Australians had to pay to get into an overheated property market.”

Rate hikes coming

While there are signs property prices may be cooling, mortgage holders are waiting on an inevitable lift in the cash rate.

“After a series of RBA interest rate hikes, we could see APRA reduce its serviceability buffer back down to 2.5 per cent,” Tindall said.

“Most Australians with home loans are in a good position to tackle the forecasted interest rate hikes heads on.”

Tindall said mortgage holders had a whopping $231.68 billion in offset accounts, which may offer a decent buffer when rates rise.

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