Predictions for the future after APRA removes benchmark

by Rebecca Pike27 Apr 2018

Opinions and predictions have formed after the Australian Prudential Regulation Authority (APRA) announced plans to remove the investor loan growth benchmark.

It was introduced in 2014 as part of a range of actions to reduce higher risk lending and improve practices and will now cease on 1 July if the authorised deposit-taking institutions (ADIs) meet certain criteria.

UBS released a report to say the group sees the requirements as ‘a material tightening in standards’.

In order to remove the 10% benchmark, ADIs must demonstrate that lending has been below the investor loan growth benchmark for at least the past 6 months; lending policies meet APRA’s guidance on serviceability; and lending practices will be strengthened where necessary.

The UBS report said, “Despite the perception of the removal of macro-prudential limits, we see this as further evidence of tightening underwriting standards to comply with Responsible Lending and APRA's guidelines. As credit becomes more restricted we believe a Credit Crunch scenario cannot be ruled out. We remain very cautious.”

Lenders have also had their say on the decision. Teachers Mutual Bank Limited’s CEO, Steve James, said, “We welcome the Council of Financial Regulators move, as communicated by APRA, to remove the investor loan growth cap. 

“We believe this will allow Firefighters Mutual Bank, Teachers Mutual Bank and UniBank and other mutual ADIs to increase competition in the market, and provide better banking options to Australian consumers.  The mutual sector has, and will continue, its strong governance standards with its superior focus on its members.”

Property experts have commented on the effect of this benchmark being lifted. Steve Jovcevski from Mozo said it would benefit housing investors, as we could see further downward pressure on mortgage rates for investors.

He added, “We’re expecting banks that may have previously shelved their investor loan business to keep within the growth limit, to start actively pursuing investors again with huge interest rate discounts.

“Already, we’ve seen lenders begin to take the knife to investor home loan rates as well as loosen up lending requirements over the last few months. APRA’s decision is likely to intensify this competition between the banks for a healthy investor loans book. The result is the gap between owner occupiers and investor rates especially for principal and interest borrowers is likely to get smaller and smaller.”

 

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