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Interest-only loans crackdown is good policy, Morningstar claims


percent lockAn investment manager has praised regulatory moves to put a lid on property investment.

Investment management company Morningstar has claimed that moves by the Australian Prudential Regulation Authority (APRA) have helped to cool the investment market, RFi Group has reported.

“Banks have responded by increasing interest rates on investor loans and interest-only loans and restricting loan refinancing of new home loans from outside existing customer bases,” Morningstar's head of Australian banking research David Ellis said.

The moves by APRA to cap the amount of interest-only loans at 30% of a bank's lending capacity has been met with a number of interest-only rate rises, with three of the four major banks announcing rate changes in the past few weeks. Ellis praised the policy, RFi reported.

“Tighter lending criteria is good policy and will strengthen the banking system,” Ellis said.

Morningstar predicted that the amount of interest-only loans would fall from a percentage of 35-40% of all home loans to only 25-30%. The investment manager said that Westpac currently had the highest flow of interest-only loans, accounting for 46% of the home loans settled by the bank from September 2016 to March 2017. Commonwealth Bank followed with 42% from June to December 2016.

Ellis noted that banks have coupled their interest-only rate rises with cuts to principal and interest home loan rates.

“This will be a good outcome and will improve financial stability for the banks and the system. The reduction in existing owner-occupier interest-only loans may be much quicker, which would again be a good outcome, in our view," Ellis said.

Image: Shutterstock

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