More Changes to Interest Only Lending


Back in March, the Australian Prudential Regulation Authority (APRA) announced tighter lending restrictions on interest-only loans, due to the heightened mortgage risk. Since APRA has tightened their grip on interest-only home loans, the big four banks and other lenders in the marketplace have continuously made changes to their interest-only products. Some banks have removed incentives such as cash back offers,  increasing the deposit amount, and raised interest rates for interest-only loans.

In an environment of high housing prices, as well as an increase in household debt, the banks have been continuing to lift their rates for interest-only loans. Over the last couple of days, there have been some significant changes in the interest-only lending space, including:

– Restrictions on maximum LVR to 80% for interest-only products (some lenders as low as 70% for investment).
– Maximum interest-only periods to 5 years.
– Removal of cash back incentives for interest-only loans.
– Fee waivers for customers wanting to switch from interest-only to principal and interest repayments.
– Increased interest rates.
– Lenders offering more attractive rates for principal and interest repayment structures.

To summarise all these changes, the banks have made it clear, bigger deposits, smaller discounts for interest-only products. Lenders are aiming to encourage borrowers to budget for principal and interest repayments. It is important to note that these changes may not affect loans that already exist or principal and interest loans.

Each lender, loan and lending type have different changes, and each borrower has a different situation. Therefore, it is a good time to seek advice from an experienced finance broker who understands the changes and challenges in the market. Additionally, a finance broker will aid in finding the right fit for your circumstances.

If you would like to know more about these changes, get in contact with us at Accrue Equity. We will help you find the right answer.