The 10 percent limit on mortgage growth may be lifted and, of course, bank lending standards will be raised at the same time.
The "10 percent growth rate" limit on investment loans, which has been in place since the end of 2014, was announced to be lifted on July 1 and replaced by more sustained measures to strengthen lending standards. For investors planning to buy homes in Australia, the cancellation of the policy has undoubtedly reduced the number of obstacles to home purchases on loans.
The origin and proscription of the 1,10% loan restriction orde
The "10% growth rate of investment loans" policy is led by the APRA, the Australian prudential Regulatory Authority. APRA is the prudential regulator of the financial services industry in Australia. It oversees banks, credit unions, and the Building Association. And all kinds of companies engaged in insurance business and so on. Currently, the APRA oversees institutions that accumulate about $6 trillion in assets.
Over the past few years, the APRA has been strengthening regulation of residential mortgages. In December 2014, they issued "prudential behavior guidance" on risk management for safe management of residential mortgages, and made many assumptions about borrowers` behavior. To assess the differences and changes in the credit standards of different banks.
It is against this backdrop that the "10% limit on investment loan growth" is used primarily to help banks reduce risky loans and require banks to limit the annual growth rate of investor loans to less than 10%. Otherwise, APRA will take intervention measures. After the rule came into effect, banks raised interest rates on loans to reduce the amount of loans they made to lenders.
More than three years later, the APRA suddenly announced the abolition of the policy. Depositors may no longer be subject to this restriction as long as they meet the following conditions:
1) in the past six months, the growth of investment mortgage is not more than 10%, which is below the benchmark of investor loan growth;
2) strengthen the auditing standard of mortgage business;
3) the loan policy conforms to the service guidance of APRA.
The restriction continues to apply to deposit-deposit institutions that cannot demonstrate compliance with the above-mentioned requirements.
2. Background to policy cancellation
"Mortgage lenders have underestimated the level of borrowers` living expenses and total debt," says APRA`s president, Wayne Byres, who has always imposed strict restrictions on home-buying loans. Just last year, APRA began a tough check on living expenses. It could leave them highly vulnerable to unexpected shocks. " So banks are asked to be more "realistic" in assessing living expenses.
However, just a month before the ban was lifted, the Australian Productivity Council, (Productivity Commission), also accused it of restricting intra-industry competition. They insist the restrictions are too rigid, limiting competition for existing market share and hampering normal competition within the industry.
Byres revealed two key factors for lifting the restriction:
First, lending standards have been strengthened: since the restrictions were put in place, the APRA has worked with banks to develop stricter investor lending standards, which are now being tightened and mortgage lending standards have been fully improved. The quality of the loan is also better.
Second, the average growth rate of investor loans has fallen sharply in recent years to just 5%, or about half of the limit. APRA has been working with banks to raise lending standards, lending growth has slowed, and investor loans have fallen sharply. Especially high-risk loans.
In short, restrictions on investment in mortgage growth have been achieved, and the order "may become superfluous".
3. Future: 30% interest-only loan policy as usual
Despite the lifting of the restriction, the APRA will continue to monitor the property market, requiring depositors to impose restrictions on highly indebted mortgage applicants to ensure that the cancellation of the benchmark does not lead to such rapid growth in investor lending. This leads to systemic concern.
In addition, the benchmark for pure interest loans, issued in March 2017, will continue to be in place and will not be adjusted for a short period of time. The measure requires interest-only loans to account for no more than 30% of new loans.
The measure was implemented because, although a 10 percent limit has been imposed since the end of 2014, growth in investment mortgages has slowed and the ability to service loans has strengthened. But at the same time, house prices and debt have risen, official interest rates have fallen and wages have stagnated. So the APRA has set a new line-interest-only `home loans must not exceed 30%.
It is important to remind you that since the rule has prompted banks to raise interest rates, the lifting of restrictions could give investors a downside boost to mortgage rates, perhaps a good time to buy a home on a loan. Of course, partners who want to buy houses in Australia need in-depth understanding of the policies, bold assumptions, careful proof, and early action.
