Cap lifted on popular financing option for clients

APRA will remove its cap on interest-only loans from next year, a move which is set to open more financing options for clients in 2019.

       

 

From 1 January 2019, APRA will remove its 30 per cent limit on interest-only residential mortgage lending for banks and other lenders.

This cap was originally put in place in March 2017 in a bid to reinforce sound lending practices, and has resulted in a cooling down of the interest-only lending market.

According to APRA, the introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30 per cent threshold.

What does this mean for property investors?

In short, this move opens up opportunity and competition in the lending market for investors in 2019.

“This enables us to have more conversations with clients about the choices that they’ve got, and the options for them with their properties,” mortgage broker and owner of Pink Finance Nicole Cannon told sister publication Smart Property Investment.

“The cap restricted how many lenders we could use, and some priced investment lending so that it’s not competitive. In some cases it’s almost just as cheap to do principal and interest as it is to do interest only, she added.

Ms Cannon believes the caps have “done their job” of educating investors about the pros and cons of interest-only loans.

“I don’t think lifting the cap will mean investors flock back to interest-only arrangements, but it does open up the conversation and options. I think the awareness is now out there to be mindful of product and structure, and ensure it meets your long term goals,” Ms Cannon said.

Approach with caution

APRA warned lenders that lifting the caps will not mean its supervision of interest-only lending practices is relaxed.

“In APRA’s view, interest-only mortgages, and in particular owner-occupied interest-only lending, remain a higher risk form of lending,” APRA said in a letter to authorised deposit taking institutions (ADIs).

“As a result, APRA expects that ADIs will maintain prudent internal risk limits on interest-only lending,” APRA said.

“These internal limits should cover both the level of new interest-only lending and the type, including lending on an interest-only basis to owner-occupiers and lending on an interest-only basis at high LVRs.”

Access to finance has proven difficult for accountants and clients alike in recent months, in the wake of the royal commission and tougher regulatory conditions from APRA.

In September, interest-only loans represented 16.2 per cent, or $61.2 billion, of new home loan approvals, according to the latest data from APRA. This represents a 54.9 per cent pe in the last quarter

 

Katarina Taurian
19 December 2018
accountantsdaily.com.au

 

Latest Accounting News

Jail time for GST fraud

Warning:  Very recent cases where GST fraud have landed business people in jail.       ...

Read More

Correcting GST Errors

            If a taxpayer finds a mistake made on a previous activity statement, they...

Read More

Fuel tax credit rates raised

The ATO have raised the fuel tax credit rates following an update of the December quarter consumer price...

Read More

ATO set to contact clients for overdue TPAR

The Tax Office will begin contacting clients in the building and construction industry about their overdue...

Read More

Reminder on Victoria Property Duties

          Property transfers between spouses and de facto partners in Victoria involving...

Read More

How Australia is performing.

            An up-to-date snapshot of Australia's vital statistics.   Please click on...

Read More

Global outlook summary: Down but not out

Down but not out As the global economy enters its tenth year of expansion following the global financial...

Read More

Bookkeepers remind on incoming TPRS obligations

With the taxable payments reporting system now set to cover five different industries, in-house and external...

Read More

Golden Rules for Deductions

            The Australian Taxation Office now uses sophisticated data analytics to assess a...

Read More

How’s Australia going – vital statistics?

            Please click on the following link to see all this interesting information. The...

Read More

Tax, SMEs set to be ‘political football’ in 2019 as election nears

Small and medium businesses are set for a busy year of tax promises as political parties look to sway voters...

Read More

Cap lifted on popular financing option for clients

APRA will remove its cap on interest-only loans from next year, a move which is set to open more financing...

Read More