Positive news for investors, potential relief for the lagging & stalling housing market.


The APRA has announced on the 19th of December 2018  that it will be removing its restrictions on supervisory benchmark on interest-only residential mortgage lending by authorized deposit taking institutions. This decision could be unprecedented given that the breaks on lending activity to investors were kicked into action earlier in 2017.

Many economists had predicted that there could be unintended consequences when many of the existing interest only loans move into P&I repayment territory. This announcement aims to address all such fears since these restrictions have now been removed.

The revoking of these restrictions also signals the regulator’s position and reiterates it’s support to the housing industry and the property market by using regulatory mechanisms to either tighten or relax standards to maintain stability in the property market which is extremely crucial from an economic point of view.

The APRA imposed these restrictions in March 2017 to force lenders to limit new interest-only lending to 30 percent of home loans that they issue.

Australia’s median property price experienced its sharpest drop since the global financial crisis earlier this month, with capital city values falling 0.9 percent. The nationwide decline in property prices is being driven by the two of the biggest property markets Sydney & Melbourne. These markets were hit the hardest falling by 9.5 & 5.8 per cent from peak to trough.

APRA has relaxed lending for the second time in 2018. The limit of investor lending growth to no more than 10 per cent was removed on 1st of July 2018.

APRA said it would now be removing its restrictions on “interest-only” lending too but only for banks that had already sufficiently reduced the amount of investor loan they had been writing. The changes shall apply from the 1st of January 20189. For other banks the interest only restrictions will be lifted once they have met APRA’s requirement to reduce their investor loans sufficiently. The introduction of this benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30 percent threshold overall.

Both restrictions – on investor loans and on interest-only loans had been introduced by APRA stemming from concerns regarding:

  • Heightened risks surrounding rising housing prices.
  • High & rising household indebtedness.
  • Subdued household income growth & Low interest
  • Strong competitive pressure.

The property council of Australia and the Australian Banking Association have welcomed APRA’s decision. The chief executive of the Australian Banking Association, Anna Bligh, said the decision would allow all banks to offer more choices for customers, leading to an increase in competition across the industry.

The results of this change will be for everyone to see in the coming months however though, for the time being, this news will be welcomed from the housing industry as well as investors and specifically by those who were locked into interest only loans. While some experts have stated that this regulation may not be enough to provide the impetus required to move the housing market from a declining to an growth territory, however it is surely a first positive coming from many months of negative sentiment towards Australia’s property market.