Finder makes money from featured partners, but editorial opinions are our own.

Banks put on notice over interest-only home loans


danger sign1Australia’s banking regulator is cracking down on interest-only lending.

The Australian Prudential Regulation Authority (APRA) today announced new measures to curb what it sees as risky mortgage lending. The regulator announced it had written to Australian banks today to inform them of new measures it says are needed to “address risks that continue to build within the mortgage lending market”.

Chief among the new measures is a cap on interest-only lending. APRA said it would expect Australian banks to limit interest-only lending to 30% of new residential mortgage lending. It will also require banks to place strict internal limits on the volume of interest-only lending above 80% loan-to-value ratio (LVR). Banks will also have to “ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90%”.

APRA chairman Wayne Byres said interest-only lending currently represents nearly 40% of residential mortgage lending, which he said was high by international and historical standards.

The must-read guide to property investment

“APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile. We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each ADI, and will consider the need to impose additional requirements on an ADI when the proportion of new lending on interest-only terms exceeds 30% of total new mortgage lending,” he said.

In addition to its measures on interest-only lending, APRA said it wanted banks to manage investor lending to remain “comfortably” below the regulator’s 10% growth cap. It also asked lenders to review their serviceability metrics and continue to restrain riskier lending such as high LVR loans, high loan-to-income loans and loans over very long terms.

“Our objective with these new measures is to ensure lenders are recognising the heightened risk in the lending environment, and that their lending standards and practices appropriately respond to these conditions,” Byres said.

Image: Shutterstock

Find the right home loan now

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and 6. Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site