Two of Australia’s major banks are cutting new lending to the most indebted borrowers as financial institutions and regulators brace for the impact of rising interest rates on mortgage customers.

With money markets betting on a series of interest rate hikes this year, ANZ Bank said this week it would no longer accept loan applications from borrowers with total debts of more than 7, 5 times their income. Previously, the bank was willing to consider applications from customers whose debt-to-income ratio (DTI) was up to nine times.

Regulators have said banks should ensure borrowers have adequate “buffers” as interest rates rise.Credit:Peter Rae

It follows a similar move by National Australia Bank, which this month cut its debt-to-income ratio limit from nine to eight times.

Although the upper limits of both banks are still high, the measures are a sign that lenders are looking to reduce their exposure to high-risk loans as interest rates rise, ending a period of ultra-good debt. booming real estate market and prices.

The Board of Financial Regulators has also urged banks to maintain sound lending standards in recent months, following growth in subprime loans in the second half of 2021.

An ANZ spokesman said the lender regularly reviews its lending appetite and policies in response to changes in the economic environment. “Given the evolution of interest rates, we recently informed brokers and bankers that from June 6th we will only accept mortgage applications with a debt ratio below 7. .5,” the spokesperson said.

Announcing the shift to mortgage brokers, ANZ said people who borrowed at a high multiple of their income were “more vulnerable to adverse changes in circumstances or loan terms“. ANZ has made it clear that there is no wiggle room in its policy. “There is no desire to consider applications with a DTI of 7.5 or greater,” the notice to brokers reads.

NAB leader Kirsten Piper highlighted the bank’s responsible lending obligations and said she welcomed ongoing consultations with regulators.

“We are committed to lending responsibly and want to ensure that customers are able to properly manage their repayments now and in the future. To do this, we work with all customers to understand their individual circumstances and assess requests based on a series of metrics,” Piper said.