APRA announces plan to remove 10% investor lending benchmarks, but what will that mean for borrowers?

Thursday 26 April 2018

Article by Tom Watson

The Australian Prudential Regulation Authority (APRA) has today announced a move to abolish temporary restrictions made on investor loan growth among Australian lenders from July 1.

APRA announces plan to remove 10% investor lending benchmarks, but what will that mean for borrowers?

Originally introduced in 2014 in response to growing concerns about soaring house prices in major cities and investing lending practices, the benchmark capped growth on the investor home loan books of lenders at 10% per annum.

According to APRA Chairman Wayne Byres, the move to remove the cap takes into account the improvements made by banks and other lenders in strengthening their lending standards - particularly in regards to better assessing borrower debt commitments.  

"The temporary benchmark on investor loan growth has served its purpose. Lending growth has moderated, standards have been lifted and oversight has improved,” said Byres.

“However, the environment remains one of heightened risk and there are still some practices that need to be further strengthened. APRA is therefore seeking assurances from ADI Boards that they will maintain a firm grip on the prudence of both policies and practices."

RELATED: Shock home loan rate rises hitting Aussie wallets hard

The removal of the cap won’t apply across the board though. APRA will first require banks and other financial institutions to prove that their lending has stayed below the investor loan cap for at least six months prior, as well as meeting any other lending practice requirements stipulated by the regulator.

While the 10% cap on investor lending is set to be removed, APRA confirmed that the 30% limit on lending to borrowers making interest-only repayments would stay in place for the time being.

"In the current environment, APRA supervisors will continue to closely monitor any changes in lending standards. The benchmark on interest-only lending will also continue to apply. APRA will consider the need for further changes to its approach as conditions evolve, in consultation with the other members of the Council of Financial Regulators," Byres said.

Investor rates already on the move

While figures from the Mozo database reveal that 26 lenders have already dropped rates for investors making principal and interest repayments since the beginning of 2018, investors are likely to benefit even more from APRA’s move.

A lift in the investor lending cap could see even greater competition among home loan lenders, with Mozo Product Data Manager Peter Marshall predicting that principal and interest investor rates will begin to move closer to rates currently offered for owner occupiers.

However, Marshall noted that any rate drops may be tempered by the increased cost of funding experienced by Australian banks as a result of higher interest rates in the United States. 

“I doubt there will be a race to completely match the owner occupier interest rates. Banks are going through a period where funding costs are increasing, and one of the ways they are recovering some of those funding cost increases is through the premiums they’ve applied to investor and interest only loans,” he said. 

RELATED: Best home loans of April 2018 - Mozo Editor’s picks

Think it could be time to refinance to a lower home loan rate for your own investment property? Start comparing a range of competitive rates today over at the Mozo investment home loan comparison hub.

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