APRA ends investor lending cap after three years

THE banking regulator has announced plans to remove the cap it placed on property lending to investors three years ago in response to booming borrowing levels and an overheating property market.

The Australian Prudential Regulatory Authority (APRA) yesterday said that improved lending standards would allow the temporary cap on new investor lending to be removed, with the focus instead to be on quality standards in lending institutions.

APRA imposed a limit on investor lending growth of no more than 10 per cent in 2014 following a surge in bank lending for property investment. In a letter sent to banks yesterday, APRA chairman Wayne Byres said the 10 per cent limit will be removed from July 1, if an authorised deposit-taking institution (ADI) has been operating below the benchmark for six months. APRA must also receive written assurance of the strength of an institution’s lending standards, including meeting guidelines on borrowers’ ability to repay loans.

Banks must confirm by the end of the month that they are meeting those expectations on lending.

Mr Byres said that with risks in the market still heightened banks have more to do to improve borrower oversight and “maintain a firm grip” on lending prudence. APRA now expects lenders to limit the proportion of new lending at very high debt-to-income levels, and put limits on maximum debt-to-income levels for individual borrowers - issues highlighted in recent concerns aired about “liar loans” with incorrect documentation, and flawed home loan applications. Banks that fail to meet the new requirements will face greater supervision.

APRA’s limit on interestonly investor loans, imposed in March, 2017, and credited with cooling the red-hot Sydney and Melbourne property markets will remain in place.