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.
Greenvale Land owners secure sale contracts with Australian-Singapore Military
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.
Free Subscription Offer
How to stay up-to-date
Do you have an opinion about APRA decision on interest-only lending?
The TREN community wants to hear your story.
Become a subscriber to TREN eMagazine and be the first to receive local breaking stories, analysis and opinions on the Townsville real estate market.
