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Townsville investors take cap off to banking watchdog

Townsville Investors welcome APRA decision to lift cap on interest-only lending

Townsville investors relieved by APRA decision

Townsville investors can feel some temporary relief from the Australian Prudential Regulatory Authority’s (APRA) decision to lift the cap on investor-only loans for residential properties offered by banks.

Yesterday, APRA made their decision to lift it’s supervisory benchmark on interest-only lending amid a review that determined the risk to private investors and financial markets has been curbed by its early intervention to rain in high risk lending.

The lending cap will be removed on the 1st January 2019 after it “led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30 percent threshold”.

The limit on lending was introduced by APRA in March 2017. Since then, residential house prices in capital cities have fallen, the most they have seen in three decades.

APRA chairman Wayne Byres 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.”

Interest-only loans made up more than 40 percent of the mortgage market in early 2017 when the regular decided to step in with the cap rules. As a consequence, banks raised interest rates on loans held by investors which raised liquidity concerns.

Property sector perspective

The Property Council of Australia have welcomed the decision by APRA to remove the cap on interest-only mortgages.

CEO Ken Morrison said; “This is a sensible step by APRA thats supports the strength and stability of our financial system which is the bedrock of the property industry.”

“The availability of finance is vital to the sustainability and growth our property sector which employs 1.4 million Australians and contributes 13 per cent to our GDP.”

“At a time when some of our largest residential property markets are cooling, APRA’s announcement provides welcome certainty and direction.” Mr Morrison said.

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Master Builders have reported a record drop in new residential building approvals in the past twelve months with North Queensland the worst affected region.

Regulations keep Interest-only appitite low

APRA’s decision could improve demand from investors seeking interest-only products. However, higher lending standards in the banking industry may prevent investors rushing into new interest-only loans without proven strong yields and cash flows.

Authorised deposit-taking institutions still need to ensure they maintain adequate oversight of the level and type of interest-only lending, consistent with APRA’s Prudential Practice Guide APG223 Residential Mortgage Lending.

Banks must also adhere to the Australian Securities and Investment Commission’s responsible lending obligations on borrower requirements and objectives.

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Aaron M, Editior
Aaron is the founder and editor of TREN eMagazine with 15 years experience in the real estate industry investing and helping investors seek value, leverage value and capitalise on value, developing professional and technical skills and capabilities that have enabled his success in business from startups, adoption, asset growth, management and community leadership projects. Aaron also loves travelling, sports, his partner Jodie and helping people discover their "why" and find their few "what's" in life that realise the "wows. The " www" in is one of his why, what and wow's that strive to add valuable content and analysis for readers to participate and win.

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