APRA campaign succeeds as investor-only loans fall

APRA’s attempts to curb investor lending in the property market appear to be working, according to UBS.

Interest-only loans fell to 30.5 per cent of bank approvals during the June quarter. Picture: David Smith

APRA’s attempts to curb investor lending in the property market appear to be working and it is unlikely non-bank lenders will be able to fill the interest-only gap left by the big banks, according to UBS.

Interest-only loans fell to 30.5 per cent of bank approvals during the June quarter, down from 37 per cent a year ago and the lowest level since 2009.

In absolute terms, investor-only lending is back to March 2016 levels.

The Australian Prudential Regulation Authority earlier this year targeted investor lending in a bid to de-risk bank balance sheets. In March the regulator reduced the cap on interest-only loans to 30 per cent of new lending, down from 40 per cent.

“There has been discussion in the market as to whether the non-banks can fill this interest-only demand gap left as a result of the APRA caps. We do not believe this is the case,” UBS analyst Jonathan Mott said in a note.

Over the last year, the banks have approved $385 billion in mortgages. Interest-only approvals would need to fall by $35bn to meet the 30 per cent cap imposed by the regulator.

Non-banks simply did not have the funding capacity via warehouses, RMBS, private investments or other means to fill this gap, Mr Mott said.

“Further, the regulators reportedly appear likely to extend their umbrella to capture such flows given the risk to financial stability,” he said.