APRA advised all authorised deposit-taking institutions (ADIs) to limit the flow of new interest-only lending to 30 per cent of total new residential mortgages and limit investor lending to remain under 10 per cent growth.
In addition, APRA said it expects lenders to ensure their interest rates, net incomes buffers and other serviceability metrics are appropriate, as well as restrain higher risk lending growth, such as loans with high loan-to-income rations, high loan-to-value ratios (LVRs) and extra-long terms.
“APRA expects ADIs to target a level of investor lending growth that allows them to comfortably manage normal monthly volatility in lending flows without exceeding this benchmark level,” 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,” Mr Byres said.
Loan providers will also be required to place internal limits on interest-only LVRs exceeding 80 per cent and be able to justify any exceeding 90 per cent.
Today’s measures build on those introduced at the end of 2014 aimed at improving the quality of new mortgage lending, and particularly moderating investor lending.
Following those announcements three years ago, auction rates fell to 50 per cent and price gains slowed.
Amid extraordinary price growth, the new string of measures may do the same to quell some of Australia’s heated property markets, especially in Sydney and Melbourne.
“This increased scrutiny has been in response to an environment of heightened risks, reflected in an environment of high housing prices, high and rising household indebtedness, subdued household income growth, historically low interest rates and strong competitive pressures,” APRA said in a statement.
“Given this environment, APRA has concluded that further steps to address risks that continue to build within the mortgage lending market are appropriate.”