APRA to remove banks’ interest-only lending restrictions

The financial regulator will lift restrictions on interest-only residential lending from January 1 in an attempt to stabilise Australia’s ailing housing market.

The Australian Prudential Regulation Authority (APRA) imposed the restrictions in March 2017 to force lenders to limit new interest-only lending to 30 per cent of home loans that they issue.

Australia’s median property price experienced its sharpest drop since the global financial crisisearlier this month, with capital city values falling 0.9 per cent.

Sydney and Melbourne, the capitals that enjoyed the biggest property booms, were hit hardest — falling by 9.5 and 5.8 per cent from peak to trough.It is the second lending restriction APRA has relaxed this year.In April, the regulator removed a “speed limit” that it had imposed on lenders since 2014, requiring them to keep investor credit growth below 10 per cent each year.

“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary,” APRA chairman Wayne Byres said.

“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.”