On 19 December, financial regulator Australian Prudential Regulation Authority (APRA) announced that from 2019, it was lifting its restriction on interest-only residential lending.
This effectively means that the APRA restriction on banks – placed in March 2017 – to limit interest-only lending to 30% of the total of new residential mortgages will end as of 1 January, at least for banks that have reduced their number of investor loans. Once other authorised deposit-taking institutions (ADIs) have improved their lending standards to meet APRA’s, they’ too will be freed from the restriction.
Will allowing banks to issue interest-only loans without regulatory restriction help the housing market to recovery? The Property Council of Australia (PCA) and the Australian Banking Association (ABA) both seem to think so.
“At a time when some of our largest residential property markets are cooling, APRA’s announcement provides welcome certainty and direction,” says Ken Morrison, PCA Chief Executive.
ABA echoed this sentiment, with its CEO Anna Bligh saying that “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.”
On the other hand, ABC News reports that property analysts aren’t convinced the decision will have much impact on property prices, though it may help investors who are coming to the end of their interest-only term to refinance more easily.
APRA cautions that “interest-only mortgages, and in particular owner-occupied interest-only lending, remain a higher risk form of lending” and that it expects banks to exercise appropriate, prudent judgment in the amount and type of interest-only loans they dish out.
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.”
It’s not all unsupervised lending from here on. APRA aims to keep a close eye on the housing market in the coming year. The Royal Banking Commission report is due for release in February, which may prompt significant changes in the industry. Depending on what changes are recommended and adopted, APRA might see fit to regulate in other ways.
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