Moves to reinforce sound mortgage lending practices will have knock-on benefits for providers of lenders’ mortgage insurance (LMI), according to ratings agency Moody’s.

The Australian Prudential Regulation Authority last week informed authorised deposit-taking institutions it will tighten supervision, as low interest rates and intense competition put lending standards under pressure.

It will pay particular attention to risky lending such as high loan-to-income, high loan-to-value and interest-only loans.

Lending to property investors and loan affordability tests will also be on the watch list.

The regulator expects lenders to test borrowers’ repayment capability at 2% above the variable rate, or a minimum of 7%.

Moody’s says the move is credit-positive for Australian banks, because it will promote prudent lending.

Senior Credit Officer Ilya Serov told insuranceNEWS.com.au the benefits will extend to LMI, although tightened supervision may bring a reduction in volume.

“This is not aimed directly at LMI, but more prudent lending benefits all participants, including mortgage insurers,” he said.