APRA to Remove Interest-Only Benchmark for Residential Mortgage Lending

The Australian Prudential Regulation Authority (APRA) has announced that it will remove its supervisory benchmark on interest-only residential mortgage lending by authorised deposit-taking institutions (ADIs).

The benchmark was put in place as a temporary measure in March 2017, as part of a range of actions over recent years to reinforce sound lending practices. The introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30 per cent threshold.

Earlier this year, APRA announced its intention to remove the supervisory benchmark on investor loan growth subject to ADIs providing certain assurances as to the strength of their lending standards. Most ADIs have now provided those assurances. ADIs that are no longer subject to theinvestor loan growth benchmark will also no longer be subject to the benchmark on interest-only lending from 1 January 2019. For other ADIs, it will be removed concurrently with the removal of the investor loan growth benchmark.

APRA Chairman Wayne Byres said: “APRA’s lending benchmarkson investor and interest-only lending were always intended to be temporary. 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.”

Notwithstanding the removal of the interest-only benchmark, ADIs still need to ensure they maintain adequate oversight of the level andtype of interest-only lending, consistent with APRA’s Prudential Practice Guide APG223 Residential Mortgage Lending and ASIC’s responsible lending obligations on borrower requirements and objectives.

A copy of the letter to industry outlining the decision is available on APRA’s website at: https://www.apra.gov.au/letters-notes-advice-adis.

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Source: Written by the APRA Media Unit, Australian Prudential Regulation Authority, December 2018

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