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APRA scraps interest-only cap

APRA scraps interest-only cap

The prudential regulator has announced that it will be removing its 30 per cent speed limit on interest-only lending from 1 January 2019. 

The Australian Prudential Regulation Authority (APRA) has announced that it will remove its supervisory benchmark on interest-only residential mortgage lending by authorised deposit-taking institutions (ADIs).

The benchmark was put in place as a temporary measure in March 2017, as part of a range of actions over recent years to “reinforce sound lending practices”.

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APRA has noted that the introduction of the benchmark has led to a “marked reduction” in the proportion of new interest-only lending, which it said is now “significantly below” the 30 per cent threshold.

Earlier this year, APRA also announced its intention to remove the supervisory benchmark on investor loan growth, subject to ADIs providing certain assurances as to the strength of their lending standards.

According to APRA, most ADIs have now provided those assurances, adding that ADIs that are no longer subject to the investor loan growth benchmark will also no longer be subject to the benchmark on interest-only lending from 1 January 2019.

The regulator said that for other ADIs, the benchmark will be removed concurrently with the removal of the investor loan growth 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.”

APRA also stated that notwithstanding the removal of the interest-only benchmark, ADIs “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 and ASIC’s responsible lending obligations on borrower requirements and objectives. 

 [Related: APRA announces fresh mortgage guidance]

APRA scraps interest-only cap
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