Powered by MOMENTUM MEDIA
subscribe to our newsletter sign up

Regulations ease, but top economist doubtful of interest-only loan resurgence

House loan application

The banking regulator’s move to lift its cap on interest-only loans is unlikely to see banks up their intake of the popular investment loan choice, according to AMP Capital’s chief economist, Shane Oliver.

Mr Oliver dismissed suggestions of a resurgence in interest-only lending, following the Australian Prudential Regulation Authority’s announcement that its 30 per cent cap on interest-only loan growth will be scrapped as of 1 January.

When asked if he believes the scrapping of the IO benchmark would trigger a rebound in banks’ appetite for such loans, Mr Oliver said that with most lenders already “well below” the 30 per cent cap, the latest announcement would not serve as an opportunity for a resurgence in interest-only lending.

“Removing the cap doesn’t mean interest-only lending is going to take off again, because banks are already well below the cap.”

Advertisement
Advertisement

Mr Oliver added: “If the banks wanted to increase the flow of interest-only lending, they could have doubled it from recent levels.

“The cap hasn’t actually been a barrier to interest-only lending, and I’d be doubtful that it would lead to an increase in interest-only lending because banks have become a lot more cautious.

Tough year for investors

The banking regulator’s cap had a notable effect on the availability of finance in 2018 for property investors.

According to a CoreLogic Property Pulse report last month, in the 12 months to September 2018, housing credit grew by just 5.2 per cent, signalling the slowest increase since November 2013.

The slowing in credit expansion was partially attributed to a fall in new interest-only lending, according to quarterly data from APRA, with more borrowers switching from interest-only to principal and interest mortgages before expiry.

In September, a survey of 820 property investors conducted by the Property Investment Professionals of Australia (PIPA) found that 13 per cent of interest-only borrowers were expecting to “struggle” when they begin repaying principal and interest by their lender, with a further 13 per cent “unsure” and 61 per cent “confident” in their ability to meet repayments.

Of those that said they would struggle to meet principal and interest repayments, 5.5 per cent said they have sold, or would have to sell, an investment property to meet loan commitments.

Regulations ease, but top economist doubtful of interest-only loan resurgence
House loan application
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
Michael Jenkins - Don't the ATO need and AFSL licence to do that. Also will the ATO performing a fact find and producing a statement of advice to those funds it it.......
Blair Campbell - HHG - I had a brief discussion with someone on Facebook recently.
They insisted that payment of income tax by individuals was 'voluntary'.
I told him that.......
Paul Cunningham - You mean "as the Sydney and Melbourne property markets charge towards their longest price correction" ....
Anonymous - Where does Core Logic get its information? In the early 1990's there was a 2-3 year price correction of up to 50% in Melbourne and Sydney in the.......