ANZ faces crunch with property borrowers on interest only loans

The ANZ chief executive Shayne Elliott predicts the pace of home loan growth will slow by roughly half to an all-time low.

He says the "extraordinary" boom in mortgage debt over the past three decades will come to an end.

But Elliott forecast the rate of housing credit growth would "trend towards" 2 to 3%, compared with the 5 to 6% of recent times.

"We’ve had 30 years where home lending has grown, for most of that, double-digit every year, and more recently at 5-6%," he said.

"That’s an extraordinary market growth over a period of time, and we’ve all become used to it, we just don’t think that’s sustainable. We think that that will be much more subdued.

“The reasons are house prices are already high, households already carry reasonable levels of debt, so it’s hard for people to borrow even more. And remember what fuelled a lot of the ability of people to borrow has been lower interest rates.

“All of those things kind of conspire to say the outlook will be softer.”

Elliott said an average Australian household with an income of $110,000 could theoretically borrow up to about $550,000 three years ago, but this maximum had now fallen to $440,000 for the same household.

"The reason for that is all of the myriad of changes that banks and regulators have made around borrowing capacity," he said.

ANZ has cut its interest-only loans by close to two-fifths over the past 18 months.

But it faces a crunch over the next two years as the volume of expiring interest only (IO) loans peaks.

The third-largest home lender on Wednesday said it had cut interest only loans to 22% of its home loan mix in the September quarter.

It was 36% in the March quarter last year.

Loans to investors slipped to 32% from 34%.

WA, the mining-dependent state, represents the worst part of ANZ's home loan portfolio.