APRA talks responsible lending in COVID-19

by Madison Utley08 May 2020

APRA has published its answers to the most frequently asked questions from ADIs concerning responsible lending as it pertains to loan repayment deferrals and residential mortgage lending throughout the period of economic disruption driven by COVID-19. 

The regulator sought to clarify its expectations on serviceability assessments for borrowers making changes to loan conditions.

While APRA’s guidance "has been" that there should be a full serviceability assessment for borrowers where there is a material change in loan conditions, as per the Prudential Practice Guide APG 223 – Residential Mortgage lending, the statement released yesterday read: “In the current environment, APRA acknowledges that there may be operational challenges for ADIs in evaluating the long-term impact of economic stress on borrowers due to COVID-19. However, this should not prevent changes to loan conditions where these are otherwise assessed to be prudent.

“Over the next six months period, APRA therefore accepts that some ADIs may not be able to complete a full serviceability assessment for borrowers seeking a change in their loan conditions. Such changes may include converting from principal and interest to interest only, or for the extension of a loan term.

“Where changes to loan conditions are made that result in an interest-only period being granted without a normal serviceability assessment, APRA expects that a reasonable period for such an arrangement would not exceed 12 months.”

However, the regulator made sure to stress that the insight published yesterday is for “discussion purposes only” and should not be taken as legal advice. 

The page on APRA’s website will be updated with the answers to new questions over the coming months.