Banks shut the door on new interest-only borrowing

APRA’s June Quarterly ADI Property Exposures data released today shows a 7.0 per cent drop in interest-only terms for new lending from the previous quarter. The drop comes despite a 10.6 per cent rise in new lending in all categories since March 2017.

RateCity.com.au Money Editor Sally Tindall said today’s APRA data showed banks had responded to the regulator’s demand to limit interest-only terms to 30 per cent of all new lending.

“Today’s data is clear: the banks have heard APRA’s message and have hit the brakes for new lenders looking to pay interest-only.

“Interest-only terms are now sitting at 30.5 per cent of all new lending which is just a fraction above APRA’s target.

“The Big4 banks still have some work to do: collectively they’re sitting at 31.5 per cent,” she said.

Existing customers appear to be hanging on to their interest-only terms, despite the hike in rates. Today’s APRA figures show a moderate 0.4 per cent drop in interest-only lending across the ADI loan books since the previous quarter.

“RateCity data shows that investors on interest-only terms are on average paying 65 basis points more than owner occupiers paying principal and interest.

“The APRA data also shows the banks are tightening the screws on borrowers with small deposits, with today’s results showing a slight dip for people with less than 10 per cent deposit,” she said.

APRA’s June Quarterly ADI Property Exposures

 ^{Source: APRA Quarterly ADI Property Exposures, June 2017}

New interest-only lending as a share of all new residential lending

 ^{Source: APRA Quarterly ADI Property Exposures, June 2017}

Average home loan interest rates according to borrower type

^{Source: RateCity.com.au, August 2017}