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The prudential regulator has claimed while its curbs on investor and interest-only lending have been successful, there is still more work to be done on ensuring “improvements the industry has made are truly embedded into industry practice”.
Speaking at the A50 Australian Economic Forum in Sydney, APRA chairman Wayne Byres said that the regulator’s most recent macro-prudential measures, which instructed banks to ensure no more than 30 per cent of new home loans were interest-only, have so far been a success.
“Over time, our interventions have served their purpose and we have seen lending standards improve,” Mr Byres said.
“Our benchmark of no more than 30 per cent of new lending being on interest-only terms is not overly restrictive for borrowers who genuinely need this form of finance — roughly one in three loans granted can still be on an interest-only basis — but it has required the major interest-only lenders to establish strategies that incentivise more borrowers to repay their principal.
“The industry has been quite successful in doing so. Recent data for the last quarter of 2017 shows that only about one in five loans were interest-only, and the number of interest-only loans with high LVRs continued to fall to quite low levels. All of that is positive for the quality of loan portfolios.”
However, Mr Byres added that the regulator is “not declaring victory just yet” and wants to see higher lending standards become a more deep-rooted foundation of the home lending landscape.
“We still want to see that the improvements the industry has made are truly embedded into industry practice,” the chairman said. “And we can modify our interventions as more permanent measures come into play.”
This will include the further strengthening of borrower serviceability assessments by lenders, strengthened capital requirements for mortgage lending and comprehensive credit reporting being mandated by the government.
“Through these initiatives, we are laying the platform to make sure prudent lending is maintained on an ongoing basis,” Mr Byres said.
APRA’s decision to cap investor and interest-only lending led the banks to lift rates in an effort to stymie demand, a strategy that has come under heavy criticism from mortgage brokers and industry associations.
A parliamentary inquiry into the big four banks last year was largely focused around whether or not the majors had profited from the mortgage repricing.
The ACCC is currently conducting an investigation into the issue.
Meanwhile, a fresh report into competition in the sector from the Productivity Commission estimates that lending curbs imposed by the banking regulator have cost Australian taxpayers $500 million a year, increased bank profits and reduced competition.