The central bank is warning that Australian lenders have begun to lower their mortgage lending standards as they seek to achieve the turbo charged pre financial crisis growth rates, an objective the RBA says is unrealistic.

The Reserve Bank of Australia says that as lenders compete for new mortgage borrowers, they were increasing their maximum loan to valuation ratios. “Increasing competition in housing loans is starting to put pressure on lending standards,” the bank said.

Smaller regional lenders, building societies and credit unions have all been trying to re capture some of the market share they ceded to the big four lenders by offering cut price mortgage deals. This has resulted in a number of mortgage borrowers refinancing their home loans to take advantage of lower interest rates offered by second tier lenders.

“If industry participants were to attempt to sustain earlier rates of domestic credit growth, they could be induced to take risks that may subsequently be difficult to manage,” the RBA said.

Despite the decline in lending standards, the central bank says that the proportion of home loans that had become delinquent remains unchanged at a benign at 0.7 per cent.

The central bank has also been following the performance of home loans to property buyers who took advantage of the first time home buyers grant that was introduced as part of the Federal government’s stimulus package in response to the global financial crisis.

The RBA says buyers who took advantage of the grant typically had lower average incomes and borrowed a larger proportion of the purchase price, and relied on record low interest rates compared to the typical mortgage borrower.

However since then interest rates have been hiked several times, and according to the central bank, borrowers who took advantage of the grant, do not seem to be suffering from a greater degree of delinquency compared to any other type of first home buyers and are beginning to pay off their debts.