With high rates of churn in mortgage books, recent increases in interest-only lending and high debt-toincome lending could rapidly affect the quality of banks’ overall mortgage portfolios, tending to dilute the improvement generated by the LVR restrictions. Interest-only and high debt-toincome (DTI) lending to housing investors has increased considerably more than for owner occupiers.
Persistent housing credit growth in excess of income growth has caused the household debtto-income ratio to grow steadily since 2012. At 163 percent this ratio now exceeds the previous peak reached during the GFC. There is a clear risk that on-going high house price inflation could lead to a further deterioration in the household debt-to-income ratio.