The lending landscape is constantly making adjustments, and right now is no different.
APRA – Australian Prudential Regulation Authority – has been monitoring investment growth and lenders have been advised by APRA to rein in their exposure to the investor market. Not only that, there has been increased scrutiny on interest only loans and the duration of the interest only period. The increased scrutiny has been brought around by an environment of heightened risks, reflected by high housing prices, high and rising household indebtedness, subdued household growth, and historically low interest rates.
The review by APRA shows current interest only lending represents about 40% of total residential loans across Australia. APRA has advised that new interest only lending would need to be limited to 30%.
Each lender has taken a different approach on how they interpret and implement the above mentioned recommendation. Initially and still in place, was the rate loading on interest only loans. This has been as much as 0.5% in some cases.
More recently however, ANZ has released an update to their interest only policy whereby:
• Interest only period’s for an investment loan is limited to 5 years out of the 30 year term. The interest only period will not be extended.
• Interest only availability for both owner-occupier and investment lending will be restricted to maximum 80% LVR (loan to value ratio) for new and increased lending (including top-ups) and external refinances.
Westpac has also announced a reduction on the LVR for owner occupied loans with interest only repayments. This used to be 95% and from now on it will be 90% including mortgage insurance.
There are many cases where interest only lending is a suitable structure however the push for principal and interest lending can assist with making sure the choice behind the structure is calculated and correctly reasoned.
Everyone has different circumstances and we are happy to run through the pros and cons of interest only, and principal and interest, with you.
The information provided in this website is General Information only, so does NOT take into account your objectives, financial situation and needs. Before acting on any information contained in this website you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs.