Westpac on track to stem interest-only loans growth to 30 percent

Westpac on track to stem interest-only loans growth to 30 percent
Westpac on track to stem interest-only loans growth to 30 percent

Westpac said it had cut the proportion of interest-only loans to 44 per cent in the third quarter from 52 per cent in the second quarter, and was on track to meet the regulatory requirements for interest-only lending.

It said interest-only lending now represents 36 per cent of new loans, down from 47 per cent last quarter.

The prudential regulator, APRA, has asked banks to cap interest-only at 30 per cent by September to cool off investor borrowing and increased the risk of a hard landing in the  property markets in Sydney and Melbourne.

It is "on track to have flow of interest-only lending below 30 per cent in [the] September quarter 2017," Westpac said.

Of the major banks, Westpac has the largest proportion of loans made on interest-only terms, reflecting a book weighted towards property investors who use interest-only loans to take advantage of negative gearing tax benefits, according to The Australian Financial Review.

Analysts expect the bank’s earnings will be hit harder than rivals from the shift to owner-occupier lending.

The pullback comes as Westpac told mortgage brokers it is responding to APRA's "refining" of the criteria used to assess a borrower's suitability to service loans, by changing the way it calculates loans and assesses borrowers' rental interest deductions.

Just last month, the nation's second largest lender, told mortgage brokers to grill clients on why they want an interest-only loan.

Its investor lending growth is 5.9 per cent. The APRA cap is 10 per cent.

Westpac also addressed shadow banking in its update, saying the level of its mortgage warehouse facilities - which are provided to 20 originators, both banks and non-banks - have been steady at $10 billion, with $3.8 billion still able to be drawn.

APRA has asked banks not to allow their warehouse facilities to grow at a faster rate than their own lending books.

Westpac said it is closely monitoring such facilities. "This includes understanding the institution's origination and servicing standards, mortgage portfolio parameters and eligibility criteria against both Westpac's and the institution's credit policies, as well as securitisation rating guidelines," it said.

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Westpac Interest Only

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