APRA figures point to surge in interest-only loans

Released yesterday, APRA’s Quarterly Authorised Deposit-taking Institution (ADI) Property Exposures for the September 2015 quarter found that banks with more than $1 billion of residential term loans approved $366 billion of new loans in the year ending 30 September 2015.

This is an increase of $36.5 billion (11.1 per cent) on the previous year.

Of these new loan approvals, $159.6 billion (43.6 per cent) were interest-only loans – an increase of $23.9 billion (17.6 per cent) from the year ending 30 September 2014.

The new figures follow the announcement of a fresh investigation into interest-only lending by ASIC senior executive leader Michael Saadat earlier this month.

Speaking at the FBAA conference at the Gold Coast on 13 November, Mr Saadat said the review would focus on interest-only lending through the third-party channel.

“Going forward, we intend to undertake a further review in the interest-only area moving on from lenders to brokers with a particular focus on brokers’ consideration of consumer requirements and objectives,” he said.

In August, ASIC published the findings of an interest-only lending probe, in which the regulator surveyed 11 lenders.

ASIC found that a greater proportion of interest-only home loans (by number) were sold through third-party channels than via direct channels.

“This indicates that brokers may be one driver of the increase of interest-only home loans,” the report said.

ASIC found that for the surveyed lenders in the December 2014 quarter, 57 per cent of the total number of interest-only home loans were sold through third-party channels (up from 49 per cent in the March 2012 quarter).

Meanwhile, approximately one third of all principal-and-interest home loans were sold through third-party channels, with a majority of loans (64 per cent) sold through direct channels in the December 2014 quarter.

While a high proportion of interest-only home loans originate through broker channels, responses from the surveyed lenders showed that incentives or commissions paid to third-party mortgage brokers, or internally to employees, were consistent for both interest-only and principal-and-interest home loans.