Advisers welcome interest-only boost

APRA confirmed it is ending its supervisory benchmark on interest-only mortgage lending. Banks had been forced to limit interest-only lending to 30% of overall mortgage lending under the rules.

The interest-only limits, introduced last year, led to a sharp drop in interest-only lending in Australia and also in New Zealand, where the major four banks are Australian-owned. New Zealand interest-only lending volumes reached $1.6 billion in October, compared to $1.89 billion in October 2016.

Mortgage advisers say the APRA curbs have made it more difficult to obtain interest-only lending facilities for property investors. They also say lenders have forced clients through principal and interest (P&I) repayment calculations, affecting their overall ability to borrow on interest-only terms.

Advisers hope the Australian changes will see New Zealand's big banks become more receptive to interest-only lending once more. Squirrel's John Bolton said: "The market here was heavily influenced by APRA. One would expect the change in approach would gradually influence things over here. I don't think the Australian regulators want to see too much changed, but this will lead to a more informal approach, rather than a tough regulatory approach. It is nice to have the softer message. When you have a good customer pushed to P&I, it is frustrating having to fight to keep them on interest-only."

The Advice Group's Stephen Wilton also welcomed the news from across the Tasman. He described the development as "really good news for all borrowers". He added: "[There's] a lot of unnecessary admin going into some interest-only extension requests. Not all lending needs to be P&I to be responsible. In many cases you could actually argue that the additional cost and pressure of  the P&I loan was actually not responsible lending. There is also a place for interest only loans for all borrowers as it allows clients to repay other more expensive debt first."

Wilton added: "All we need now is a smart lender to include an actual interest-only servicing costs in their affordability calculators when a client call clearly demonstrate an ability to sell down and service the residual debt on their own residence."

APRA's decision to end interest-only restrictions comes as the country's major cities experience a sharp downturn in property prices. House prices in Sydney and Melbourne have dropped by 10% over the past year, with some market experts forecasting another 10% fall.