Banks shut the door on new interest-only borrowing

Banks shut the door on new interest-only borrowing

More home buyers are being forced to pay down their debt according to the latest APRA figures, which show a marked drop in interest-only terms for new housing loans.

APRA’s June Quarterly ADI Property Exposures data, released today, shows a 7.0 per cent drop in interest-only terms for new lending from the previous quarter. The drop comes despite a 10.6 per cent rise in new lending in all categories since March 2017.

RateCity.com.au money editor Sally Tindall said today’s APRA data showed banks had responded to the regulator’s demand to limit interest-only terms to 30 per cent of all new lending.

“Today’s data is clear: the banks have heard APRA’s message and have hit the brakes for new lenders looking to pay interest-only,” she said.

“Interest-only terms are now sitting at 30.5 per cent of all new lending which is just a fraction above APRA’s target.

“The big four banks still have some work to do: collectively they’re sitting at 31.5 per cent.”

Overall loan books show smaller drop

Existing customers appear to be hanging on to their interest-only terms, despite the hike in rates. Today’s APRA figures show a moderate 0.4 per cent drop in interest-only lending across the ADI loan books since the previous quarter.

“RateCity data shows that investors on interest-only terms are on average paying 65 basis points more than owner occupiers paying principal and interest,” Ms Tindall said.

“The APRA data also shows the banks are tightening the screws on borrowers with small deposits, with today’s results showing a slight dip for people with less than 10 per cent deposit,” she said. 

 

June quarter ADI property exposures (source: APRA)

Residential lending

March 2017 (millions $)

June 2017 (millions $)

Change from prev. quarter (%)

New housing loan approvals (ADIs)

89256.8

98685.5

10.6%

New interest-only loans approved (ADIs)

32355.1

30083.4

-7.0%

New housing loan approvals (major banks)

67056.2

75864.4

13.1%

New interest-only loans approved (major banks)

25766.7

23882

-7.3%

 

New interest-only lending as a share of all new residential lending (source: APRA)

 

March 2017 (%)

June 2017 (%)

All ADIs

36.2%

30.5%

Major banks

38.4%

31.5%

 

Average home loan interest rates according to borrower type (source: RateCity)

Borrower type

Rate

Owner-occupier, principal & interest

4.35%

Owner-occupier, interest-only

4.58%

Investor, principal & interest

4.79%

Investor, interest-only

5.00%

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

How much information is required to get a rating?

You don’t need to input any information to see the default ratings. But the more you tell us, the more relevant the ratings will become to you. We take your personal privacy seriously. If you are concerned about inputting your information, please read our privacy policy.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.