The restrictions were put in place as a temporary measure by the Australian Prudential Regulation Authority (APRA) back in March 2017 to encourage lenders to adopt sound lending practices.
APRA’s announcement comes just weeks after CoreLogic figures showed Australia’s housing market recorded its weakest conditions since the Global Financial Crisis (GFC).
National dwelling values slipped by 0.7% over the month, led by Sydney where the drop was double the national average.
As such, many pundits believe the restrictions are being lifted to prevent the housing market from sinking further.
APRA, however, is claiming it’s simply a case of ‘mission accomplished’.
It says the restrictions have already led to a marked reduction in interest-only lending, which is now significantly below the target of 30% of all home loans that lenders issue.
Most, but not all.
Earlier this year APRA announced it would remove its 10% restriction on investor loan growth for lenders who could prove they had strong lending standards.
Lenders who have passed this test will also no longer face restrictions on interest-only home loans.
But for lenders that haven’t yet proven the strength of their lending standards, the restrictions will remain in place until they do so.
“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary,” says APRA Chairman Wayne Byres.
“Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.”
With the restrictions lifted, it should now be easier for borrowers to secure an interest-only loan from January 1.
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