Australia's banking regulator says the limit on property investor loans is reaching 'the end of its useful life'

Steve Christo/Corbis via Getty ImagesThe sun is setting on home-loan restrictions on investor lending.
  • APRA has indicated it will remove lending restrictions introduced in 2014.
  • Chairman Wayne Byres said the 10% cap on investor lending was “probably reaching the end of its useful life”.
  • Further macro-prudential restrictions introduced in April 2017 will remain ongoing.

Australia’s banking regulator indicated today that it’s ready to lift home-loan restrictions on investor lending which have been in place since 2014.

The Australian Prudential Regulation Authority (APRA) chief Wayne Byres told a Senate hearing in Canberra that the lending cap was reaching “the end of its useful life”, the AFR reports.

The restriction — introduced in December 2014 — gave APRA authority to intervene if an individual bank exceeded 10% growth in investor lending over a 12-month period.

Byres highlighted two key reasons for the potential removal of the cap:

1. Since the cap was introduced, APRA had been working with the banks to develop stricter underwriting standards for investor loans; and
2. Average investor loan growth was currently running at just 5% — around half the limit — which suggests sufficient compliance with the restriction across the industry.

The reduced demand for investor loans is one of the reasons Byres cited for why the 10% “is potentially becoming redundant”, according to the AFR.

“At the aggregate level, demand seems to have subsided,” he said.

“Also, it was put in place because we were particularly uncomfortable with the lending standards in which many of those loans were being granted, and as those lending standards have been improved, you can start to think about substituting it.”

Byres said APRA has no plans to remove additional macro-prudential measures enacted in April 2017, which capped interest-only lending at 30% of all new loans issued.

He said the more recent measure was still at a relatively new stage and more time was needed to assess its effect on financial stability.

Around six months after the 30% limit was introduced, home prices in Australia’s major east-coast housing markets began to decline.

Prices continued to cool over the summer months which saw annual price growth in Sydney turn negative for the first time since 2012, although there are signs the market is stabilising.

In addition to the 2014 investor lending cap, the interest-only lending restrictions also drove noticeable falls in investor lending at the end of last year.

Housing finance data for December from the ABS showed annual lending to investors fell by 10.5% from a year earlier — a decline partially offset by a pickup in loans to owner-occupiers.

The 2017 restrictions were cited by the Productivity Commission in early February as one of the factors that limits competition in the banking industry.

While APRA’s 10% investor lending cap looks to be on the way out, various analysts have raised the prospect that other macro-prudential measures may be forthcoming.

In December, JP Morgan economist Tom Kennedy said debt-to-income restrictions may be introduced, given household debt continues to climb faster than incomes — sentiments echoed by ANZ’s David Plank earlier this month.

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