APRA ends property investment lending cap - Ironfish

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APRA ends property investment lending cap

The Australian Prudential Regulation Authority (APRA) today announced plans to end restrictions placed on bank lending to residential property investors.

In 2014, APRA imposed a cap which required banks to limit growth in lending to housing investors to 10%. The restrictions were introduced during a period of surging property prices particularly in Sydney and Melbourne.

But APRA states that this cap has now “served its purpose” and will discontinue the cap as of 1 July 2018 to banks who can demonstrate they have been adhering to APRA’s lending guidelines.

For the 10% benchmark to no longer apply, Bank boards will be expected to confirm that:

  • lending has been below the investor loan growth benchmark for at least the past 6 months;
  • lending policies meet APRA’s guidance on serviceability; and
  • lending practices will be strengthened where necessary.

The announcement is set to benefit residential property investors both in terms of accessibility to finance and interest rates on investment loans.

“APRA’s decision today is good news for our investors. As the 10% ‘speed limit’ on investment loan growth ends, we expect to see competition increase for investor lending, which in turn, may also put pressure on the interest rates offered for residential investment loans,” said Ironfish National Apartments Manager, William Mitchell.

APRA now expects banks to introduce their own limits on the proportion of new lending at very high debt-to-income levels, and policy limits on maximum debt-to-income levels for individual borrowers.

APRA Chairman Wayne Byres also noted that APRA’s 30% limit on interest-only lending will also continue to apply but may be reassessed in future.

“In the current environment, APRA supervisors will continue to closely monitor any changes in lending standards. The benchmark on interest-only lending will also continue to apply. APRA will consider the need for further changes to its approach as conditions evolve, in consultation with the other members of the Council of Financial Regulators,” Mr Byres said.

If you would like further details about today’s announcement, please contact your local Ironfish branch. For more information about property investment in Australia, please feel free to download our quarterly market report which covers all 5 major cities: Sydney, Melbourne, Brisbane, Perth and Adelaide.