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‘Significant decline’ in interest-only loans

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Reporter 4 minute read

New data from Mortgage Choice has revealed that there was a 60 per cent decline in interest-only mortgages over a period of just six months.

According to Mortgage Choice’s latest home loan approval data, the proportion of interest-only loans written by the brokerage dropped from 35.95 per cent in April 2017 to 14.64 per cent in September 2017.

CEO of Mortgage Choice John Flavell said that the “significant decline” was a result of lenders pulling back in a bid to remain under the prudential regulator’s 30 per cent limit for this type of mortgage.

Mr Flavell said: “[M]ost lenders significantly increased their interest-only home loan rates in a bid to cool this type of lending. Some lenders lifted their interest-only rates by as much as 40 basis points, which has since caused demand for this type of product to drop.”

Mr Flavell suggested that the dramatic fall in interest-only demand could result in lenders reviewing their rates.

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He said: “[I]t seems for some lenders at least, the pendulum may have swung a little past its centre point and they are now working on bringing it back into place.

“In recent weeks, we have seen some lenders start to reduce the rates on their interest-only loans.

“As a result, we may see demand for this type of product tick back up again over the coming weeks and months.”

The Mortgage Choice CEO highlighted that there are still lenders that are "more than happy to offer interest-only loans to owner-occupiers and investors", borrowers “will just need to show good reason for wanting an interest-only loan”.

In relation to this, the financial services regulator has revealed that it will “shortly” begin contacting brokers that have a “high proportion of interest-only loans” and start reviewing their loan files to ensure that lenders are only providing interest-only home loans in “appropriate circumstances”.

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[Related: ASIC to review loan files of ‘high IO’ brokers]

‘Significant decline’ in interest-only loans
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