Home Finance & Economy Interest-only loans plummet after regulatory crackdown

Interest-only loans plummet after regulatory crackdown

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Interest-only lending plummeted 44.8% during the September quarter, following a regulatory crackdown by the Australian Prudential Regulation Authority (APRA).

Interest-only loans hit a historic low of 16.9% of new loans in the September quarter, down from 30.5% in the June quarter. Two years ago interest-only mortgages were almost half of new loans.

In March APRA introduced new lending restrictions in order to curb risky lending and cool the property market.

APRA capped interest-only loans at 30% and many banks increased interest rates on interest-only loans.

At less than 17%, the amount of interest-only loans is now far below the 30% cap.

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“This has been a colossal turnaround in the way banks view interest-only terms,” Rate City money editor Sally Tindall told ABC News. “The move away from interest-only lending should help bring down Australia’s record high household debt-to-income ratio.”

The crackdown has likely been a factor in declining home prices in Sydney, the country’s priciest property market.

“The impacts have been most pronounced in Sydney, where auction clearance rates have fallen to multi-year lows and house price growth, on some metrics, has turned negative,” said JP Morgan economist Tom Kennedy.

Source: ABC News

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