APRA’s new mortgage lending measures take bite

Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority (APRA) recently announced that it will be introducing extra measures to improve the quality of mortgage lending in Australia and moderate investor lending. This comes in a response to increased housing affordability issue and a surge in investor lending, in conjunction with a fall in owner-occupied loans.

What measures are being implemented by APRA, and what do they mean for borrowers?

In response to unsustainable increases in investor lending, APRA is introducing Loan to Valuation Ratio (LVR) limits to keep this market from growing in excess of 10 per cent each year.

APRA expects lenders to limit new interest-only lending to only 30 per cent of total new home loans and it wants the proportion of mortgages that have high LVRs (above 80 or 90 per cent) to dramatically reduce. The idea is that this will bring growth back to manageable levels, and moderate price increases in cities such as Melbourne and Sydney.

APRA is also trying to curb lending growth in high loan-to-income loans, high LVR loans, and long-term loans.

How will these measures impact property purchasers?

Annual growth in investor lending of more than 10 per cent tends to drive housing prices up at unsustainable rates and lock a lot of property seekers out of the market, so these measures will be welcomed particularly by first home owners – who may feel priced out of the market right now. These measures indicate that APRA is clamping down on high-risk mortgage lending and doing its bit to protect both lenders and mortgage holders from experiencing volatile situations.