An interesting read on the changes in interest only residential mortgage lending…
The Australian Prudential Regulation Authority (APRA) has announced it will remove its supervisory benchmark on interest-only residential mortgage lending by banks, a decision supported by groups across the industry.
The benchmark was put in place as a temporary measure in March 2017 to respond to concerns of an oversupply of interest-only loans.
The introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30% threshold.
Earlier this year, APRA announced its intention to remove the supervisory benchmark on investor loan growth subject to authorised deposit-taking institutions (ADIs) providing assurances as to the strength of their lending standards, which most have now done.
ADIs that are no longer subject to the investor loan growth benchmark will also no longer be subject to the benchmark on interest-only lending from 1 January 2019.
For other ADIs, it will be removed concurrently with the removal of the investor loan growth benchmark.
APRA chairman Wayne Byres said, “APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary.
“Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.”
The Australian Banking Association (ABA) has welcomed APRA’s announcement, saying it will increase choice for home loan customers and improve competition across the industry.
CEO Anna Bligh said the decision by APRA would not only benefit customers, it also showed that banks were lending prudently with the proportion of interest-only loans more than halving in two years.
“APRA’s announcement shows that banks have adjusted lending to respond to concerns around an oversupply of interest-only loans, illustrating a prudential system where both banks and regulators can quickly and effectively respond to a changing environment,” she said.
“While banks will continue to lend prudently, today’s decision will mean all banks can offer more choice for customers who are looking to buy a house or apartment.
“Increased competition across the industry will mean customers have more ability to shop around for the best deal for them when looking at an interest-only home loan.”
According to the APRA figures, in terms of banks home loan commitments, the proportion of interest-only loans are now 16.2% much lower than the proportion seen two years ago (37%).
This is down from the record high reached in June 2015 when 45.6% of new loans written were interest-only.
Notwithstanding the removal of the interest-only benchmark, ADIs still need to ensure they maintain adequate oversight of the level and type of interest-only lending, consistent with APRA’s Prudential Practice Guide APG223 Residential Mortgage Lending and ASIC’s responsible lending obligations on borrower requirements and objectives.
Source: The Australian Broker- Brokernews.com.au