Brokers are writing significantly fewer interest-only loans as borrower demand plummets, new data from Mortgage Choice has revealed.
According to the brokerage, the proportion of interest-only (IO) mortgages written by its brokers fell by more than 20 per cent in the 12 months leading to February 2018.
IO loans accounted for 12.22 per cent of all home loans written in February 2018, down by 23.73 per cent from 35.95 per cent.
Mortgage Choice chief executive officer John Flavell said that he wasn’t surprised by the figures, and he attributed the “dramatic decline” to macro-prudential measures imposed by the Australian Prudential Regulation Authority (APRA) last year.
“In March 2017, [APRA] ordered banks to limit their level of interest-only loans to 30 per cent of all new residential mortgages,” Mr Flavell said.
“As a result, many lenders significantly increased their interest-only home loan rates and enforced stricter rules in order to curb demand for this type of product.
“This made it harder for borrowers to qualify for an interest-only mortgage and, subsequently, we saw demand drop.”
The Mortgage Choice CEO said he believes that lenders could revise current pricing arrangements for IO loans to attract increased demand.
“APRA stated last month that lenders were conforming to its requirements, with interest-only mortgages running at about 20 per cent of all new lending,” Mr Flavell said.
“This may provide lenders with some leeway to loosen the reins on their interest-only loans.”
Mr Flavell also noted that despite tightened lending conditions, eligible borrowers in the market for an IO loan can still find a suiter.
“There are still lenders willing to offer interest-only loans to owner-occupiers and investors wanting this type of product, but they need to be in a strong financial position and have a good reason for wanting an interest-only loan,” the executive said.
[Related: Home loan demand falls two months in a row]
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