Lending in Australia’s housing market has taken a conservative turn, as new data revealed a sharp drop in high debt-to-income ratio loans during the December 2022 quarter.

CoreLogic Australia Head of Research Eliza Owen said that new Australian Prudential Regulation Authority (APRA) figures showed just 11% of new loans originated on a debt-to-income ratio of six or more in the quarter, a significant decline from the peak of 24.3% seen a year earlier.

The Quarterly ADI report also showed that the portion of new loans with a loan-to-income ratio of six or more dropped to 4.5% from 11.0% a year earlier.

The current rate-hiking cycle, which was limiting borrowing capacity, was a significant factor in the decline of high-debt-to-income ratio loans.

According to Owen, record lows had been recorded in both ratios, though only on a relatively short back series to March 2019.

While the portion of loans originated with a loan-to-valuation ratio of 90% or more declined to a record low of 5.9%, late payments on mortgages have increased slightly.

The report revealed that the total portion of loans with late repayments sat near record lows of 1.01% in the December quarter of 2022.

This was an increase from 0.98% in the previous quarter, led by a slight uptick in the volume of loans that were 30-89 days past due.

The rise in past-due loans may be a sign of households struggling to keep up with their mortgage payments amid rising rates and high living costs.

However, the labour market was expected to remain tight, even if the unemployment rate rose over the year.

It was also worth noting that 99% of mortgage borrowers continued to make timely payments in the December quarter, despite the sharp increases in the cash rate.

The latest APRA data suggested ongoing stability in Australia’s mortgage market, with a more prudent lending environment as interest rates rise.

As more households see fixed terms expire and rates increase, Owen said it was likely that the proportion of loans with late payments would trend higher, albeit from record lows.

The adaptability and resilience of households were also worth considering, as interest rate increases were likely to prompt households to divert money from savings to interest payments.