APRA removes restrictions on interest-only loans

In March 2017, The Australian Prudential Regulation Authority (APRA) placed a restriction on banks to limit the volume interest-only residential mortgages, as part of a range of temporary actions to slow the property market and reinforce sound lending practices. They also placed a limit on investor loans as well.

As of 1 January 2019, those restrictions on interest-only loans and investment property loans will be removed.

APRA expects the banks to continue their own internal limits, however APRA will no longer ask lenders to report on meeting the 30% benchmark.

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 over a number of years.”

"As a result, APRA expects that ADIs will maintain prudent internal risk limits on interest-only lending. These internal limits should cover both the level of new interest-only lending and the type, including lending on an interest-only basis to owner-occupiers and lending on an interest-only basis at high LVRs."

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 per cent threshold.

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Good news for investors

We expect to see some lenders relaxing their investment property loan restrictions, which may alleviate some of the inconsistent lending practices where one day a lender might approve an interest-only request, and the next day decline the application. From an investor’s perspective, the lender options may increase, however second-tier lenders have been a firm choice for investors over the last 12 months as the restrictions impacted the big banks more than the smaller lenders.


APRA to remove IO benchmark
APRA scraps interest-only cap

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