Lenders have successfully met the macroprudential limits set by the Australian Prudential Regulation Authority (APRA) in March 2017, halving the category in the December quarter.
APRA’s December Quarterly ADI Property Exposures statistics, released last Tuesday, shows that interest-only loans have fallen to 15.22% of new lending, compared to 36.26% in the three months to March 2017.
The Big Four have reduced their share of new interest-only loans to 15.53%, down from 38.43% in March 2017.
The drop was a direct response to APRA’s directive in late March 2017 for lenders to restrict higher-risk interest-only loans to 30% of new residential mortgages.
Sally Tindall, money editor at RateCity, said the results confirm that APRA’s lending restrictions are having a significant effect on new borrowing.
“Borrowers have accepted their fate: they’ve committed to paying off their mortgages,” she said. “Now the banks have proven to APRA they can remain well under the cap, they’re looking to loosen the screws.
“Over the last month we’ve seen the Big Four and a range of challenger banks drop rates for fixed rate interest-only lending, some to pre-March 2017 levels.”
At the start of this month, Westpac and Commonwealth Bank of Australia (CBA) said they would slash fixed rates on key products, including interest-only investor loans. National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) have followed suit.
Michael Yardney, director of Metropole Property Strategists, agrees that the Big Four are eager to revive demand in sluggish property markets.
“Now that the Big Four banks have reduced the percentage of their loans to well within the macroprudentail limits required by APRA, their doors are open for business again,” Yarndey told Your Investment Property. “The Big Four are all lowering rates on interest-only loans in a bid to attract investors back.”
“Property investors can often get an interest rate with a ‘four’ in front of it, and some banks are offering interest-only home loans with a ‘three’ in front.
“However, while interest rates are an important consideration, investors should also look for flexibility in their loan structures and should compare different banks’ serviceability criteria. Some banks will lend you more than others because they will look at your income, your rental cash flow, any bonuses you receive and your outgoings differently.
“Sometimes it’s worth paying a little more in interest to get a larger loan amount.”
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.