APRA Lifts Limit on Interest-only Mortgages starting January 1

Finally some good news for property investors with APRA announcing it will lift the floodgate on interest only borrow from January 1.

The Australian Prudential Regulation Authority issued a statement just before Christmas to all lenders informing them it was removing its 30 per cent benchmark on growth in interest-only loans, saying it had “served its purpose” to dampen risky lending. APRA threw the investor lending growth restraint over the entire market last year over concerns about the rise in “higher risk lending” and growing levels of debt among Aussie families.

APRA chairman Wayne Byres said “the proportion of new interest-only lending has halved, and interest-only lending at high loan-to-valuation ratios (LVR) has also declined markedly” since that time.

RateCity research director Sally Tindall said interest-only loans now made up 16.2 per cent of new lending compared to the record high of 45.7 per cent in June 2015. “This announcement will see banks re-open their books to more interest-only lenders, particularly investors.” But, she said, “whether they drop their interest-only rates to attract more borrowers on to their books will be interesting”.

In fact, according to the final ACCC report into residential mortgage pricing released last week found that the big four banks collected an extra $1.1 billion over the last financial year as a result of hiking interest-only rates. Makes you wonder… Approval times have also dropped from two weeks to two months with half of all applications being rejected.

The Royal Commission is the next elephant in the room with the potential to drag the credit squeeze well into 2019. The residential construction sector is already cooling and one would image that policy makers will need to proceed cautiously when responding to the Commission’s recommendations!

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