APRA calls time out on the interest only cap in a bid to breathe life back into home lending



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APRA’s announcement today that it will remove its temporary benchmark on interest-only lending from 1 January 2019 is a bid to steady the home loan market, says comparison site RateCity.com.au.

The announcement comes a week after APRA’s latest Quarterly ADI Property Exposures statistics showed interest-only loans had fallen to 16.2 per cent of new lending for all authorised deposit-taking institutions (ADIs).

This is down from the record high reached in June 2015 when 45.7 per cent of new loans written were interest-only.

While APRA’s interest-only cap of 30 per cent was only for new lending, the banks entire loan books are now under this mark, at 27 per cent for all ADIs.

Sally Tindall, research director at RateCity.com.au, said today’s announcement is good news for investors.

“APRA’s intervention has had a marked effect on new borrowing and banks have proven that they can remain well under the cap,” she said.

“This announcement today will see banks re-open their books to more interest-only lenders, particularly investors.

“Whether they drop their interest-only rates to attract more borrowers on to their books, will be interesting.

“Banks have grown accustomed to charging borrowers more for interest-only loans. 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,” she said.

RateCity.com.au data shows that three years ago the average gap between owner occupiers paying principal and interest and investors paying interest-only was 0.20 percent. Today it is 0.57 per cent.

“With increasing anxiety over the domestic housing market, the government will be hoping this decision will help curb the falls in home lending and steady the Sydney and Melbourne housing markets.

“Investors currently on interest-only terms who were looking down the barrel of having to switch to principal and interest repayments will be hoping this gives them a reprieve as well,” she said.

APRA also noted that “for ADI’s that have provided the necessary assurances on their lending standards and are no longer subject to the investor loan growth benchmark, the interest-only benchmark will also no longer apply.” 

Average rates according to borrowing type

Owner occupier, principal and interest

4.27%

Owner occupier, interest-only

4.68%

Investor, principal and interest

4.60%

Investor, interest-only

4.84%

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