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Interest-only loans ‘deluge’ unlikely despite cap lifting, says CPA

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Interest-only loans ‘deluge’ unlikely despite cap lifting, says CPA

APRA’s lifting of restrictions of interest-only loans will unlikely see a “deluge” of new loans, says one accounting body.

Business Jotham Lian 20 December 2018
— 1 minute read

Yesterday, the financial regulator announced that it would remove its 30 per cent limit on interest-only residential mortgage lending for banks and other lenders.

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According to APRA, 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.

Speaking to Accountants Daily, CPA Australia head of policy, Paul Drum said that while the cap was only a temporary measure, the market had self-corrected itself over time.

“The markets have probably had a bigger impact on the writing of loans than the cap because they – both the ASX and the real property markets – have self-corrected in recent times anyway,” said Mr Drum.

“Further, banks have self-corrected to reduce their own loan book risk exposures.”

Mr Drum doesn’t believe the change will see a rush towards interest-only loans in today’s market climate.

“We don’t expect a deluge or proliferation of new interest-only loans to be written any time soon,” he said.

“From an accountant and investor perspective, at the end of the day, this will be dictated by expectations of investment yield and ultimate expected return on investment.”

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Interest-only loans ‘deluge’ unlikely despite cap lifting, says CPA
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