As we welcome in the new year, we also welcome an unexpected shift in the very stringent lending environment. The tightened lending environment began in March 2017 and has become tougher ever since. Australian Prudential Regulation Authority (APRA) led the charge with restrictions in place to limit the new interest-only lending to a maximum of 30% of new residential home loans issued.
The effect of the limitation on interest-only loans was immediate. In June 2015, interest-only loans made up 45% of new loans issued. The target cap for APRA sits around 30%. The increased restrictions saw that figure fall to only 16%.
On 19th December 2018, APRA announced that they would be removing the cap which they had set on interest-only lending. Although the effects of this may not be instant, it’s a great sign of the regulators intent to restore some normality back into the market. It’s a surprise that this has occurred so early as this is something we anticipated for the latter half of 2019. This will likely result in the 16% rising toward the 30% target.
The lending environment is very cyclical and for those who have been around long enough, know the environment is constantly changing. It’s important to be reactive, calm and keep perspective around the ever-changing market. The lending environment is now bottoming and transitioning from a period of restriction to a period of relaxation.
So, what does this mean for us?
Put simply, it’s great news for any prospective investors.
It will be easier for investors to get finance this year as banks will compete for investor lending more aggressively than they have in the last couple of years. Also, investors will be able to borrow a bit more than they would have previously as bank servicing calculations are more generous toward interest only loans than principle and interest loans.
Click here, to have a read of the article published by Domain on this topic.