This week, it got harder to get a mortgage. The Australian Prudential Regulations Authroity (APRA) announced new supervisory measures for banks. In particular, banks are required to:
- Limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending, and within that:
- Place strict limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent; and
- Ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90 per cent.
These conditions apply to owner occupied as well as investment loans – APRA is clearly concerned about borrowers who can only just make the repayments now on their home and wants to be sure that they can cope when rates eventually go up.
APRA also reiterated to lenders that it expects the to keep their growth in investment lending to a maximum of 10 per cent.
What APRA is really focusing on is bank risk. Concerned about banks’ exposure to a property market, which is getting close to its peak in parts of the Eastern states, the regulator wants to be sure that there is no collapse either in the property market.
Regulation of lenders is only going to get tougher. Hidden in APRA’s announcement was a mechanism that will enable them to influence the rate of those non-confirming lenders that have been able to challenge the banks.
It is going to get tougher to get a mortgage from now on. If you need help in arranging a loan, please contact Chan & Naylor Finance.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.