The Australian Prudential Regulation Authority (APRA) has recently clamped down on interest-only loans in a bid to cool the Australian property market, especially in Sydney and Melbourne.
These changes build on the gradual tightening of rules for investment loans over the last couple of years in an effort to reduce the amount of risk the major four banks carry and to reduce the heat in the capital city property markets.
Your Mortgage Magazine has reported Interest-only loans constitute nearly 40% of residential mortgage lending in Australia and APRA said it had written to all lenders and said from now on interest-only loans must be restricted to 30 per cent of new residential mortgage loans.
So why are interest only home loans so popular in Australia?
The major benefit of an interest only home loan is it means the monthly repayment is lower. It gives buyers an opportunity to purchase a property without being initially overwhelmed with the full principal and interest repayments.
Interest only loans are a good way for new home buyers to ease their way into the property market without spending too much initially.
Benefits aside, industry commentators support the APRA changes in a week which saw CoreLogic figures showing home prices in Australia’s capital cities have jumped 3.7 per cent since the start of the year alone, with Sydney leading the charge, increasing by 5.3 per cent.
In a recent news.com.au article Economist Lindsay David argues, “If we’re going to restore some sanity to the Australian housing market, the regulator must step in to ban “toxic” interest-only loans, “It’s definitely the best policy to take artificial and speculative heat out of the market.”
While these changes interest only home loans may impact on the demand for property, others suggest it is up to local governments to address supply by making more land available for property development.
Either way, if you are looking to finance your first home, upgrade to a newer home, or purchase an investment property speak to me about how these new changes could impact on your home loan.
To get in touch simply call 0417 649 145 or fill out the form below.