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APRA to remove investor lending benchmark

The Australian lending regulator has announced it will remove the standing 10 per cent speed-limit on investor lending growth, arguing that it has “served its purpose”.

As of 1 July 2018, lenders which have been operating below the 10 per cent investor lending growth benchmark will no longer be required to do so, provided the Australian Prudential Regulation Authority (APRA) is satisfied with the lenders' policies and practices.

The benchmark, which was introduced in December 2014, was intended to improve lending standards, APRA chairman Wayne Byres said in a letter announcing the change.

“Since the benchmark was applied in 2014, however, the ADI (Authorised Deposit-taking Institution) industry has taken steps to improve the quality of lending and increase balance sheet resilience,” he continued.

“There has been a clear reduction in higher risk lending, with investor loan growth moderating, interest-only lending declining and high loan-to-valuation lending also markedly lower.

“There have also been improvements in lending policies, increasing the rigour of serviceability assessments for new borrowers. Accompanying this, there has been an uplift in capital resilience, as the industry makes progress towards the ‘unquestionably strong’ targets announced by APRA in mid-2017.”

As such, the investor loan growth has “served its purpose”.

Nevertheless, APRA will continue to monitor the housing market to ensure the removal of the benchmark does not result in such rapid investor loan growth as to raise systemic concerns.

“Such an environment could lead APRA to consider, for example, the need to apply the counter-cyclical capital buffer or some other industry-wide measure,” Mr Byres warned.

However, the 30 per cent limit on interest-only lending will continue to apply until further notice. 

"APRA will consider the need for further changes to its approach as conditions evolve, in consultation with the other members of the Council of Financial Regulators," Mr Byres said.

APRA to remove investor lending benchmark
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