APRA eases limits on property investor borrowing

The banking regulator has moved to junk strict limits on property investor borrowing, citing lenders’ improved standards.

APRA has scrapped the 10 per cent annual growth cap on lending to investor borrowers.

The banking regulator has moved to junk strict limits on property investor borrowing, claiming lenders have improved their standards.

But the move the scrap the 10 per cent annual growth cap on lending to investor borrowers also comes amid fierce criticism from smaller banks that have claimed the prudential regulator has stifled competition and locked in the entrenched market position of the major lenders.

The Australian Prudential Regulation Authority on Thursday announced it would get rid of the limit, which was introduced in 2014 in a bid to cool surging property prices in east coast capital cities.

APRA said the limit was “temporary” and that banks had “taken steps to improve the quality of lending, raise standards and increase capital resilience”.

Banks will now be able to ignore the 10 per cent limit if they are able to provide assurance they have strengthened their lending practices.

This includes proving that lending has been below 10 per cent for at least the past 6 months, that the bank meets rules about lending responsibly, and that the bank follows APeS guidance where it’s processes need to be strengthened.

APRA said the move was approved by the Council of Financial Regulators, which includes Treasury, the Australian Securities & Investments Commission and the Reserve Bank.

But APRA Chairman Wayne Byres said there was still more to do to strengthen the assessment of borrower expenses and existing debt levels, and the oversight of lending to borrowers outside of normal policy rules, known as overrides.

Wayne Byres, chairman of the Australian Prudential Regulation Authority. Picture: Hollie Adams

“The temporary benchmark on investor loan growth has served its purpose,” Mr Byres said. “Lending growth has moderated, standards have been lifted and oversight has improved. However, the environment remains one of heightened risk and there are still some practices that need to be further strengthened. APRA is therefore seeking assurances from (bank) Boards that they will maintain a firm grip on the prudence of both policies and practices.”

For banks that do not provide the required commitments to APRA, the investor loan growth benchmark will continue to apply.

As part of these measures, APRA also expects banks to develop internal portfolio limits on the proportion of new lending at very high debt-to-income levels, and policy limits on maximum debt-to-income levels for individual borrowers.

“In the current environment, APRA supervisors will continue to closely monitor any changes in lending standards,” Mr Byres said. “The benchmark on interest-only lending will also continue to apply. APRA will consider the need for further changes to its approach as conditions evolve, in consultation with the other members of the Council of Financial Regulators,” Mr Byres said.