In March 2017, the Australian Prudential Regulation Authority (APRA) introduced measures to reduce the amount of interest-only loans in the residential lending market. One of these measures was a benchmark for lenders to keep new interest-only lending below 30% of their total new lending.
On the 19th December 2018, APRA announced that they would be removing this benchmark as they have noted that there has been a noticeable reduction in the amount of new interest-only lending, with the proportion now significantly below the 30% benchmark.
APRA confirmed that the removal of the benchmark will take effect on the 1st January 2018.
The chairman of APRA, Wayne Byers, reiterated that the restrictions were only a short-term fix. He 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.”
Whilst this is likely to be perceived as good news in a cooling housing market where lending is also under increased regulation, it’s important to note that banks & lenders are still required to oversee the level and type of interest-only lending whilst also considering their responsible lending obligations.
It will be interesting to see how the banks and lenders respond to this news, particularly since they have also had the 10% investor lending cap removed. It’s unlikely we’ll see a massive increase in lending as the banks & lenders are still under the scrutiny of the Royal Commission, where the recommendations resulting from that won’t be released until early 2019.
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