Super-sized loans trigger RBA concerns

NOT only have first-home buyers been swamping banks for mortgages, they have also been taking out bigger loans over the past year, spurred on by Government cash incentives and low interest rates.In some months the average loan size among new home owners have exceeded new loans to other home owners, prompting renewed fears of a bad-debt time bomb for banks.Yesterday the Reserve Bank warned the super-sized loans were an "unusual outcome" by historical standards, given loans among first-home buyers have traditionally been smaller than other home buyers.New home owners now account for about one-third of all new mortgage applications among banks, compared with less than 20 per cent before incentives were introduced, most of which will be substantially wound back from the end of the month.Figures compiled by the Australian Bureau of Statistics showed the average loan size for first-home owners was $269,100 in July, an increase from $246,500 a year ago.The latest figures compare with the average loan size for all owner-occupied housing commitments of $266,900.In its half-yearly Financial Stability Review, the RBA said global financial conditions remain challenging "but the severe downside risks that loomed six months ago have significantly abated".Separately, the RBA noted that funding costs for banks had fallen substantially from the peak of last year's financial crisis, to the extent that it was now slightly cheaper for AA-rated banks to issue unguaranteed debt in domestic markets after taking into account the fee charged to access the government wholesale funding guarantee.However, it was still relatively more expensive for smaller banks to issue unguaranteed debt and the cost of wholesale funding remained high on international markets.