August 2017
Q&A: APRA’s tightening of residential mortgage lending practices
Overview
APRA initially raised concerns in 2014 around residential mortgage lending practices, particularly in relation to the growth in investor lending. However, the regulator has since considered that factors such as rampant growth in metropolitan dwelling prices, high levels of household debt, subdued wages growth, record-low interest rates and an increase in interest-only lending to investors have contributed to a heightened risk environment.
APRA chairman Wayne Byres stated in March 2017 that interest-only terms represented almost 40% of residential lending, which was high by global and historical standards. He advised that APRA had issued supervisory measures under which it expected ADIs to:
- Limit new interest-only loans to 30% of total new residential mortgage lending
- Manage lending to investors to below a 10% growth rate
- Ensure that interest rate and net-income buffers are set at appropriate levels
- Restrain lending growth in high-risk areas of the portfolio such as high LVR loans.
“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,” Byres said.
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Learning objectives
After reading this article you should be able to:
- Identify the supervisory measures APRA set for mortgage lending
- Explain APRA’s reasons for tightening residential mortgage lending practices
- Outline the major impacts of the tightening of the rules
- Describe the potential challenges of the changes for the mortgage broking industry.
Knowledge areas and accreditation
Knowledge area: Credit and Mortgage Broking (30 minutes/0.5 points).
FPA CPD points 0.5 Dimension: Capability (FPA 009289).
AFA CPD points 0.5 (AFA 01022009).
FBAA CPD points 0.5.
CPA Australia CPD points 0.5 (CPA 000335).
TPB CPE (30 minutes/0.5 points)