APRA Scraps Investor Loan Growth Cap

The Australian Prudential Regulation Authority has announced plans to remove the 10 per cent investor loan growth benchmark and replace it with more permanent measures to strengthen lending standards.

Lenders are able to apply to have the limit removed provided they can demonstrate qualifying requirements.

The 10 per cent benchmark on investor loan growth was a temporary measure, introduced in 2014 as part of a range of actions to reduce higher risk lending and improve practices.

For the 10 per cent benchmark to no longer apply, boards will be expected to confirm that lending has been below the investor loan growth benchmark for the past 6 months, that the bank’s lending policies meet APRA’s guidance on serviceability and that lending practices will be strengthened where necessary.

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APRA chairman Wayne Byres said that while Thursday’s announcement reflects improvements that institutions have made to lending standards, there is more to do to strengthen the assessment of borrower expenses and existing debt commitments, and the oversight of lending outside of policy.

"The temporary benchmark on investor loan growth has served its purpose. Lending growth has moderated, standards have been lifted and oversight has improved,” Byres said.

“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 ADI Boards that they will maintain a firm grip on the prudence of both policies and practices," Byres said.

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

The changes however do not relate to the limits on interest-only loans which were introduced in March, 2017. The capping of them to 30 per cent of new housing loans will remain in place until further notice.

“In the current environment, APRA supervisors will continue to closely monitor any changes in lending standards. The benchmark on interest-only lending will also continue to apply,” Byres said.

“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.”