Last week, it got a wee bit harder for owner-occupiers and investors to obtain a mortgage.
The Australian Prudential Regulation Authority (APRA) announced new supervisory measures for banks. Moving forward, banks are required to:
- Limit the flow of new interest-only lending to 30% of total new residential mortgage lending- Place strict curbs on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80%
- Ensure there is strong scrutiny and justification of interest-only lending at an LVR above 90%
APRA is concerned about borrowers who can only just make the repayments on their homes and wants to ensure they can financially cope when interest rates eventually go up. The agency also reminded lenders that it expects them to keep their growth in investment lending to a maximum of 10%.
Clampdown on interest-only lending aims to cool hot property market
Interest-only lending currently represents nearly 40% of the stock of residential mortgage lending by banks—a percentage which is considered rather high by international and historical standards, APRA said.
The regulatory watchdog said its new supervisory measures on interest-only lending are warranted, as it helps ensure that lenders recognise the heightened risks in the lending environment.
“APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile,” said APRA Chairman Wayne Byres. “We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each [lender], and will consider the need to impose additional requirements ... when the proportion of new lending on interest-only terms exceeds 30 per cent of total new mortgage lending.”
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