The Future of Interest Only Loans

We foreshadowed the policy changes on the horizon by lenders a couple of weeks ago, it is now a reality the message is clear “choke the investment market”.

So what does this mean if you are a first time investment borrower you need 30% equity and for those who are leveraged to 90% will be forced to revert to principal and interest at the expiry of the interest only term. The intention is to suffocate this segment and also let the lenders to realign their balance sheet. The data recently confirms the slowdown in investment loans. Will this assist first home affordability? Certainly not in our view, only the appropriate fiscal settings will have an impact.

Needless to say the impact on cash flow and properties coming onto the market. As this is an APRA directive it will be applied by all lenders without exception.

Interest Only (IO) repayment Home Loan Update
Westpac is committed to lending responsibly and in the best interests of customers. APRA recently announced new measures to slow the growth of interest only lending to 30% across the Australian banking sector. In order to meet this new regulation, we are making changes to some of our lending policies. Effective Monday 15 May 2017, the maximum LVR (inclusive of any capped mortgage insurance premium) for Owner Occupied Interest Only will be 90%. This applies to both new loans and further loans (loan increases and top ups).

The only exceptions are:

Building/Construction
Loans where Interest Only is available during the construction period before reverting to Principal and Interest repayments.

Parental Leave
Where Interest Only is available for a maximum 12 month period and the loan will then revert to Principal and Interest.

Bridging Loans.
In this low interest rate environment, we are offering competitive interest rates to customers who make Principal and Interest repayments to encourage them to pay down their mortgages and own their homes sooner. The maximum LVR for Owner Occupiers making Principal and Interest repayments remains at 95% subject to mortgage insurance.