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Advisers welcome interest-only boost

The Australian Prudential Regulation Authority has relaxed restrictions on interest-only lending, and mortgage advisers hope the decision will have a positive impact on New Zealand's lending market. 

Thursday, January 10th 2019, 8:27AM

APRA confirmed it is ending its supervisory benchmark on interest-only mortgage lending. Banks had been forced to limit interest-only lending to 30% of overall mortgage lending under the rules.

The interest-only limits, introduced last year, led to a sharp drop in interest-only lending in Australia and also in New Zealand, where the major four banks are Australian-owned. New Zealand interest-only lending volumes reached $1.6 billion in October, compared to $1.89 billion in October 2016.

Mortgage advisers say the APRA curbs have made it more difficult to obtain interest-only lending facilities for property investors. They also say lenders have forced clients through principal and interest (P&I) repayment calculations, affecting their overall ability to borrow on interest-only terms.

Advisers hope the Australian changes will see New Zealand's big banks become more receptive to interest-only lending once more. Squirrel's John Bolton said: "The market here was heavily influenced by APRA. One would expect the change in approach would gradually influence things over here. I don't think the Australian regulators want to see too much changed, but this will lead to a more informal approach, rather than a tough regulatory approach. It is nice to have the softer message. When you have a good customer pushed to P&I, it is frustrating having to fight to keep them on interest-only."

The Advice Group's Stephen Wilton also welcomed the news from across the Tasman. He described the development as "really good news for all borrowers". He added: "[There's] a lot of unnecessary admin going into some interest-only extension requests. Not all lending needs to be P&I to be responsible. In many cases you could actually argue that the additional cost and pressure of  the P&I loan was actually not responsible lending. There is also a place for interest only loans for all borrowers as it allows clients to repay other more expensive debt first."

Wilton added: "All we need now is a smart lender to include an actual interest-only servicing costs in their affordability calculators when a client call clearly demonstrate an ability to sell down and service the residual debt on their own residence."

APRA's decision to end interest-only restrictions comes as the country's major cities experience a sharp downturn in property prices. House prices in Sydney and Melbourne have dropped by 10% over the past year, with some market experts forecasting another 10% fall.

Tags: Lending regulation Squirrel

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.69 4.35 4.35 4.55
ANZ Special - 3.85 3.85 4.05
ASB Bank 5.70 4.29 4.35 4.55
ASB Bank Special - 3.89 3.85 4.05
BNZ - Classic - 3.85 ▼3.79 4.05
BNZ - Mortgage One 6.40 - - -
BNZ - Rapid Repay 5.85 - - -
BNZ - Std, FlyBuys 5.80 4.69 4.59 4.79
BNZ - TotalMoney 5.80 - - -
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.60 4.75 -
Housing NZ Corp 5.80 4.69 4.49 4.45
HSBC Premier 5.89 3.79 3.79 3.89
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.60 4.60 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.65 - - -
Kiwibank Special - 3.85 3.85 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 ▼4.69 ▼4.79 -
Resimac 5.30 4.86 4.14 4.19
RESIMAC Special - - - -
SBS Bank 5.79 4.85 5.05 5.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 3.85 3.85 3.99
Sovereign 5.80 4.29 4.35 4.55
Sovereign Special - 3.89 3.85 4.05
The Co-operative Bank - Owner Occ 5.65 3.89 3.89 4.05
The Co-operative Bank - Standard 5.65 4.39 4.39 4.55
TSB Bank 5.69 4.45 4.35 4.55
TSB Special - 3.95 3.85 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.79 4.69 4.79 5.19
Westpac - Offset 5.79 - - -
Westpac Special - 3.85 3.85 4.05
Median 5.80 4.35 4.35 4.19

Last updated: 22 July 2019 9:19am

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