Stuart Jackson, portfolio manager at the Montgomery Private Fund, said APRA’s decision to lift the 30 per cent cap on the issuing of new interest-only mortgages could see lenders reduce their interest-only and investment property standard variable rates (SVRs).
This is because many initially increased their rates in early 2017 as a means of curbing booming investor interest in such loans and, therefore, meeting the cap restrictions.
However, he warns that such changes are not likely spur the market to return to the “normal service” of 2015’s lending climate, as personal income factors are currently the main drivers restricting lenders from offering loans.
“This does give the banks more flexibility in providing products to borrowers. As such it is a marginal positive,” Mr Jackson said.
“However, this will not result in a resumption of normal service (i.e. reversion back to 2015 credit conditions) given that the main constraint on the flow of mortgage credit has been more onerous serviceability hurdles through the increased scrutiny of actual household expenses, as well as overall debt to income ratios.”
As such, he said the changes will simply assist borrowers who have been denied entirely on the basis of lenders having no space to lend further under the cap.
Mr Jackson said the fact that the majority of the major banks previously decreased their number of new interest-only mortgages to levels significantly under the cap means this type of lender likely had little impact on credit flow.
“Given that all of the majors have reduced the percentage of new mortgages that were interest only to levels well below the cap, this would not have been a significant restriction on the flow of credit in itself,” he said.
Late last year, the Australian Prudential Regulatory Authority (APRA) announced it would lift the 30 per cent cap on the number of new interest-only mortgages that had been imposed on lenders since March 2017.
The change came into effect on 1 January this year, on the basis that lenders provided the regulatory authority with assurances that their lending practices had strengthened and were conducted prudently.
APRA has previously said that most lenders, including the four major banks, have met such criteria.
The broader market
According to CoreLogic’s December home value index results, Australian dwelling values fell -4.8 per cent in 2018, with the major markets of Sydney and Melbourne experiencing an -8.9 per cent and -7 per cent drop respectively.
The state capitals combined recorded a -6.1 per cent decline in prices, with Hobart the only major city to record significant growth (+8.7 per cent).
However, many regional areas performed notably well throughout the year, with regional Tasmania seeing +9.9 per cent growth and regional Victoria +5.9 per cent.