No further crackdown for interest-only customers: Mortgage Choice

Banks will soon be comfortably meeting the regulator's cap on interest-only mortgage lending, and could partially unwind some of the tighter credit conditions being felt by many property investors, one of the country's biggest mortgage brokers predicts.

Almost six months after the prudential regulator told banks to put the brakes on interest-only home lending, Mortgage Choice says the slowdown in this part of the market means banks will meet the 30 per cent cap on new interest-only lending by the end of next month.

Westpac will cap interest discounts for investors as APRA ramps up the pressure on the banks to curb growth in investor loans. Big banks have slowed interest-only lending by raising rates for these types of loans by about 0.6 percentage points, and requiring new customers to stump up bigger deposits. But Mortgage Choice chief executive John Flavell on Thursday predicted banks' recent tightening of credit policies, and moves to charge interest-only customers a higher premium on their loans, were coming to an end.

That is because the changes announced so far should allow banks to comply with the 30 per cent cap, and banks might even start to ease up on the tighter conditions in the interest-only market. "My feeling is there's room to kind of wind some of that back a little bit," he said at the broker's financial results. The interest rate gap between interest-only and and other loans is currently up to 1 percentage point, but he suggested this might narrow, or loan to valuation hurdles could become less demanding for interest-only customers.

Mr Flavell said his discussions with banks had indicated lenders expected to be comfortably within the Australian Prudential Regulation Authority's 30 per cent cap on the share of new loans being written to interest-only customers. "The feedback that I've had from most of our lend departments is they've actually adjusted their setting so that they have got quite a margin between being at, or breaching their cap, in terms of the 30 per cent flow." "APRA will get their cap -there's no doubt about that," he said. In the year to June 30, Mortgage Choice's profit rose 10.2 per cent to $22.6 million. It said the growing complexity of the home loan market was driving more people towards mortgage brokers.

There have been few signs of banks loosening interest-only lending so far, but earlier this month Commonwealth Bank cut interest rates across fixed-rate home loans, including for interest-only customers. Australia's two largest banks, Westpac and CBA, also say they will comply with APRA's cap on interest-only lending. Westpac, the country's biggest lender to landlords, had the most work to do to meet APRA's interest-only cap. It this week said interest-only loans made up 44 per cent of new lending in the June quarter, down from 52 per cent in March, and it was "on track" to be below the 30 per cent cap in the September quarter. CBA's head of retail banking, Matt Comyn, told investors earlier this month CBA was already below the cap and would be "comfortably" within the limit by the end of next month.

SMH / August 24 2017