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December 19, 2018

APRA announced that it will remove its supervisory benchmark on interest-only residential mortgage lending by authorized deposit-taking institutions. 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% threshold.

Earlier this year, APRA announced its intention to remove the supervisory benchmark on investor loan growth, subject to the authorized deposit-taking institutions providing certain assurances about the strength of their lending standards. Most authorized deposit-taking institutions have now provided those assurances. The authorized deposit-taking institutions that are no longer subject to the investor loan growth benchmark will also no longer be subject to the benchmark on interest-only lending from January 01, 2019. For other authorized deposit-taking institutions, the supervisory benchmark will be removed concurrently with the removal of the investor loan growth benchmark.

Notwithstanding the removal of the interest-only benchmark, authorized deposit-taking institutions still need to ensure they maintain adequate oversight of the level and type of interest-only lending, consistent with APRA’s Prudential Practice Guide APG 223 Residential Mortgage Lending and ASIC’s responsible lending obligations on borrower requirements and objectives. APRA plans to conduct a review of the authorized deposit-taking institution risk controls on interest-only lending next year, as part of a broader assessment of improvements that have been made in lending standards. Along with the other members of the Council of Financial Regulators, APRA will also continue to closely monitor conditions in the housing market. As with investor loan growth, a re-acceleration in interest-only lending at an industry-wide level would raise systemic concerns. In such a scenario, APRA would consider the need to apply industry-wide measures in response.

 

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Keywords: Asia Pacific, Australia, Banking, Residential Mortgage Lending, APG 223, Supervisory Benchmark, APRA

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