Lender to increase IO rates for owner-occupiers

Effective from 23 June 2017, interest-only repayments on variable rates for owner-occupier loans (excluding investors) will increase by 15 basis points.

Currently, the lowest advertised rates available to owner-occupiers are 3.94 per cent (Mortgage Simplifier variable rate) and 3.79 per cent (Orange Advantage).

From 23 June, the Orange Advantage annual fee will also increase, going up $100 to $299.

The moves come after additional supervisory measures were announced for interest-only lending by the regulator.

APRA announced in March that it expects banks to limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending (down from the previous limit of 40 per cent), and within that: place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent; and ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90 per cent.

Speaking at the time, APRA chairman Wayne Byres said: “APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile. We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each ADI, and will consider the need to impose additional requirements on an ADI when the proportion of new lending on interest-only terms exceeds 30 per cent of total new mortgage lending.

“APRA has chosen not to set quantitative limits in relation to serviceability assessments at this point in time. However, APRA considers it important that borrowers retain some level of financial buffer to allow for unexpected events, especially for borrowers that have high levels of indebtedness. 

“APRA will therefore continue to scrutinise serviceability assessments, and ADIs continue to need to advise APRA should they propose to change their existing methodologies or policies,” Mr Byres said.

[Related: Interest-only mortgage glut sparks default risk]