The prudential regulator has eased its responsible lending guidance around the changing of loan terms for existing mortgage customers amid the COVID-19 crisis.
The Australian Prudential Regulation Authority (APRA) has issued guidance around serviceability assessments for borrowers seeking loan relief amid the COVID-19 crisis.
The regulator acknowledged that there may be “operational challenges” for ADIs in “evaluating the long-term impact of economic stress on borrowers due to COVID-19”.
APRA stressed that such challenges “should not prevent changes to loan conditions where these are otherwise assessed to be prudent”.
Accordingly, APRA revealed that while full serviceability assessments would continue to be required for new lending, it would temporarily ease guidance for changes to existing loan terms, including the conversion of a principal and interest (P&I) loan to interest-only (IO).
“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,” the regulator noted.
“Such changes may include converting from principal and interest to interest-only, or for the extension of a loan term.”
However, APRA noted that for conversions from P&I to IO “without a normal serviceability assessment”, it expects that IO terms “would not exceed 12 months”.
“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.
This follows last month’s clarification from APRA that for mortgage repayment deferrals, lenders “need not treat the period of the repayment holiday as a period of arrears”.
In March, the federal government also issued responsible lending exceptions for small-business credit.
The government stated that in order to allow lenders to “move quickly to support small businesses”, it would provide an exemption for this rule for a period of six months.
This exemption will only apply to lenders who provide credit to existing small-business customers, provided there is an existing borrowing relationship and some proportion of that credit is used for business purposes.
[Related: Responsible lending exception issued]