As regulations continue around the tightening of interest-only lending, NAB has raised deposit requirements on its interest-only loans.
In a memo to mortgage brokers, the big bank announced significant increases to loan-to-value ratios on interest-only loans. Owner-occupiers, who could previously borrow with a deposit of just 5%, will now need to save up 20% before applying. Investors are in the same boat, with LVRs dropping to 80%, down from 90% previously.
The memo said NAB was, “making changes to some of its policies regarding interest-only home loans to ensure we continue to meet our regulatory requirements and responsible lending obligations.”
Another major lender, the Commonwealth Bank, is making similar changes, reducing interest-only LVRs for owner occupiers and investors to 80%. Both NAB and CommBank’s changes take effect on June 10 2017.
Mozo property expert Steve Jovcevski said the changes may cause borrowers to think twice before jumping into the property market.
“Borrowers looking for interest-only loans will have to be careful about how they manage their finances before and after taking on the mortgage,” he said.
“Now, not only do they need a plan for paying off the lump amount at the end of their home loan term, they also need to have saved up a sizeable deposit before even applying.”
The LVR changes are in response to tougher lending restrictions announced by APRA earlier this year, limiting interest-only loans to just 30% of banks’ new lending. The tighter restrictions have seen many banks make changes to lending requirements over the past few months, including adjusting LVRs and hiking interest rates.
The changes particularly targeted investment loans and what is seen as “high risk” lending - mainly interest-only loans or loans with high LVRs.
In some cases, new investment lending was halted completely as banks worked to stay under APRA’s lending limit. CommBank and Bankwest suspended new lending to investors looking to refinance back in February, a decision that was only recently reversed.
Jovcevski said the restrictions could actually be good news for owner-occupiers trying to enter the market with a principal and interest loan.
“Its often investors taking out interest-only loans, and tighter lending requirements may make them think twice, giving first home buyers a better chance to break into a competitive market,” he said.
If you’re a first home buyer looking to get a foot on the property ladder, make sure you head over to our home loan comparison table to find some cost effective mortgage options designed specifically for you.