The Australian Prudential Policy Authority (APRA) will soon remove its so-called interest only “speed limit” that saw banks put the brakes on interest only loan approvals.
We anticipate cheaper interest rates are simply around the corner but is the correct time to apply for an interest only loan?
APRA has removed the 30% cap
Considering that March 2017, the major banks and other authorised deposit-taking institutions (ADIs) have been required to cap interest just approvals to 30 percent of their whole loan book.
The speed limit belonged to a raft of requirements presented by the market regulator (APRA) ahead of the damning Royal Commission into Misconduct in the Banking, Superannuation and Financial Solutions Market.
Satisfied that lenders have adequately reduced their loan book danger, APRA will get rid of the IO cap from 1 January 2019.
The most recent news follows the elimination of the 10% growth rate cap on investor lending back in July this year.
” APRA’s financing standards on financier and interest-only lending were always intended to be momentary,” APRA chairman Wayne Byres said.
” Both have actually now served their purpose of moderating higher risk financing and supporting a steady conditioning of financing requirements across the market over a number of years.”
Is this great news for property investors?
We’re most likely to see interest only rates dropping to match principle and interest (P&I) rates of interest over the next couple of months.
Nevertheless, the short-term will see banks continue to keep a relatively tight leash on interest just mortgage approvals so lending institution choice is necessary.
The reason is that APRA still requires ADIs to maintain adequate oversight of the level and kind of interest only lending.
Loaning power will continue to be heavily-reduced for interest only applications due, in part, to the crackdown on examining living expenditures.
Is The Interest Only Loan Crackdown Over?
Think that banks will continue to carry out stringent queries regarding the function of the interest only term.
What we were seeing on a regular basis was borrowers unable to extend their interest only period when refinancing.
As a general rule, approvals for interest only mortgage will be challenging while IO for financial investment will be quicker accepted as long as you remain in a great financial position.
For example, loan providers will be weary about authorizing and extending an IO term for a debtor with black marks on their credit file or those with a bad payment history.