APRA has ruled lenders need to urgently address the percentage of interest only loans they hold on their books. They have deemed interest only loans should account for no more than 30% of the lender’s total portfolio but the current ratio is 39% so some severe cutbacks will likely be coming through the system in the coming weeks as banks adjust their policies.
I am writing to you to warn these policy changes will likely affect existing mortgage holders, not just new applications. It is possible one lender reaction could be to make it more difficult for borrowers to renew an expiring interest only period. If you have a term expiring in the near future please drop us a line to see if we can renew that early for you, to save you being forced to suddenly have to make principal and interest repayments when you aren’t expecting to.
This may not apply to you if your repayments are principal and interest but there is a wider issue here that everyone needs to be aware of, in my opinion.
If new investors are suddenly restricted then there will likely be a dampening effect on the property market as they shelve plans to buy a property to rent out. Demand will reduce. Combine this with the possibility investors who have stretched themselves too thin, having bought several properties relying on making interest only repayments, may have to sell some of their portfolio to make it affordable for them, potentially adding to the supply of property in the market.
Stay tuned though because I am not certain APRA have considered the wider reaching implications of this new rule. I’ll keep you posted.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!