Figures show a dive in interest-only lending

The latest AFG Mortgage Index reveals IO lending slows significantly over the first two quarters of FY18

Figures show a dive in interest-only lending



The number of interest-only mortgages being written has continued to trend downwards as APRA's crackdown on this type of lending begins to show.

In the latest AFG Mortgage Index to December 2017, interest-only loans across Australia accounted for 33% of the mortgages lodged in the last quarter of FY17.

The decline comes on the heels of APRA’s move last March to cap the amount of new loans that can be interest-only at 30%. APRA said then that the measure was warranted to make sure lenders recognised the increased risks in the lending industry.

The volume of interest-only loans has been declining over the past few years – going down from a high of 59% in the last quarter of 2015 to 47% in the same period of 2016. For the first two quarters of FY18, the AFG index puts the volume at 19%. 

In terms of average mortgage loan size, Victoria saw an increase that was nearly double that of New South Wales over the past 12 months – 4.3% for Victorian buyers and 1.8% for those in NSW.

“There has been a lot of focus on Sydney house prices, and therefore mortgage sizes, but homebuyers in Victoria are seeing the biggest increases,” said AFG CEO David Bailey. “In Victoria, the average mortgage size has jumped 3.2% in the final quarter of 2017 to now be sitting at $496,815.” 

Meanwhile, the national average loan size was up 2.8% over the past 12 months. 

Major lenders continue to lose ground to non-major players as borrowers look at alternatives to large bank-backed brands. “The majors have 64.2% of the market compared to the non-majors sitting at 35.8%,” said Mr Bailey.

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