APRA Scraps Cap On Interest-only Loans

Posted on 19/12/2018  
APRA Scraps Cap On Interest-only Loans

APRA will remove its 30% limit on interest-only residential mortgage lending for banks and other lenders from 1 January.

This cap was originally put in place in March 2017 in a bid to reinforce sound lending practices and has resulted in a cooling of the interest-only lending market.

According to APRA, the introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30% threshold.

The new move opens up opportunity and competition in the lending market for investors in 2019.

“This enables us to have more conversations with clients about the choices that they’ve got, and the options for them with their properties,” says mortgage broker and owner of Pink Finance, Nicole Cannon.

“The cap restricted how many lenders we could use, and some priced investment lending so that it’s not competitive. In some cases it’s almost as cheap to do principal-and-interest as it is to do interest-only”.

Cannon says the caps have “done their job” of educating investors about the pros and cons of interest-only loans.

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