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Property panic sees interest-only loan restrictions relaxed

"Ultimately housing prices have played a big part in this."

Jack Derwin

Digital Journalist, Your Money

Watchdog APRA has announced that it will lift restrictions on interest-only loans from 1 January 2019 in an effort to stabilise major housing markets.

In March 2017, the Australian Prudential Regulation Authority (APRA) limited new interest-only lending to 30 per cent of home loans issued by lenders.

It has now announced it will remove that interest-only limitation to stabilise the nation’s housing markets.

APRA chairman Wayne Byres during Senate Estimates at Parliament House in Canberra, Thursday, March 2, 2017. (AAP Image/Mick Tsikas)

Over the last twelve months, and due to a variety of factors, Australian home prices have declined dramatically in capital cities Sydney and Melbourne, at the fastest rate since the global financial crisis (GFC).

It is the second lending restriction APRA has lifted this year.

In April it announced that it would abolish a 2014 requirement to maintain investor credit growth below 10 per cent per year.

“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary. Both have now served their purpose of moderating higher-risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years,” chairman Wayne Byres said. 

However, it was ongoing concern about the state of the nation’s major property markets that really fuelled the decision by APRA, Your Money’s chief business reporter told Trading Day.

“APRA will tell you until they’re blue in the face that they’re not really interested in housing prices as the prudential regulator of banks but ultimately housing prices have played a big part in this,” Leo Shanahan said.

Watch the full analysis with Your Money chief business reporter Leo Shanahan above. 

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