The tightening was in response to heightened risks caused by high house prices, high and rising household indebtedness, subdued household income growth, historically low interest rates, and strong competitive pressures.
APRA Chairman Wayne Byres said the 10 per cent benchmark for growth in lending to investors is an appropriate constraint in the current environment.
He added: “APRA expects deposit-taking institutions to target a level of investor lending growth that allows them to comfortably manage normal monthly volatility in lending flows without exceeding this benchmark level.
“Our objective with these new measures is to ensure lenders are recognising the heightened risk in the lending environment, and that their lending standards and practices appropriately respond to these conditions.”
What are the new measures to address the risks?
APRA has written to all authorised deposit-taking institutions advising them to:
- limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending
- apply strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent
- ensure strong scrutiny and justification of interest-only lending at an LVR above 90 per cent
- manage lending to investors to comfortably remain below the previously advised benchmark of 10 per cent growth
- review and ensure that serviceability metrics, including interest rate and net income buffers, are set at appropriate levels for current conditions
- restrain lending growth in higher risk segments of the portfolio (e.g. high loan-to-income loans, high LVR loans, and loans for very long terms).