Banks shut the door on new interest-only borrowing


APRA is slowly getting its way – forcing the banks to pull the welcome mat out from under the feet of property reserve interest rate save money finance loan

More home buyers are being forced to pay down their debt according to the latest APRA figures, which shows 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. 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. 

“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 Big4 banks still have some work to do: collectively they’re sitting at 31.5 per cent,” she said.

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.

“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.

APRA’s June Quarterly ADI Property Exposures

Residential lending March 2017 (millions $) June 2017 (millions $) Change from prev. quarter (%)
New housing loan approvals (ADI’s) 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%

Source: APRA Quarterly ADI Property Exposures, June 2017

New interest-only lending as a share of all new residential lending

  March 2017 (%) June 2017 (%)
All ADI’s 36.2% 30.5%
Major banks 38.4% 31.5%

Source: APRA Quarterly ADI Property Exposures, June 2017

Average home loan interest rates according to borrower type

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%



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'Banks shut the door on new interest-only borrowing' have 2 comments

    Avatar for Michael Yardney

    August 30, 2017 David

    Hi Michael,
    In comparing investor, P&I loan vs Interest only, would it be advantageous for Investors to pay Principal and Interest at a lower rate which they can refinance later to access the principal. Versus Interest only loan where the extra higher rate is not accessible?


      August 30, 2017 Michael Yardney

      David – It depends on what stage of your investment career you are at. If you’re still at the asset growth stage I’d prefer to pay a little bit more (remember it’s tax deductible) to have the flexibility of Interest Only. I would repay as if it is P&I and put the extra into an offset account and have it there as my buffer. You never know what the lending environment will be when you need you funds and whether you’ll be able to redraw them.


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