Large proportion of interest only loans due to expire between 2018 and 2022: RBA

Large proportion of interest only loans due to expire between 2018 and 2022: RBA
Large proportion of interest only loans due to expire between 2018 and 2022: RBA

The RBA have noted they are aware of the number interest-only loans which were penned before the recent tightening of mortgage lending.

Speaking at the Responsible Lending and Borrowing Summit on Tuesday, RBA assistant governor Michele Bullock said a "large proportion of interest-only loans are due to expire between 2018 and 2022".

Bullock said most of her focus has been on owner-occupiers, who account for around two-thirds of housing debt outstanding.

She said investors have less incentive than owner-occupiers to pay down their debt.

"Many take out interest-only loans so that their debt does not decline over time," Bullock said.

"If housing prices were to fall substantially, therefore, such borrowers might find themselves in a position of negative equity more quickly than borrowers with an equivalent starting LVR that had paid down some principal."

 

By early 2017, 40 per cent of the debt did not require principal repayments.

Bullock said there is always a balance to be struck with lending standards.

"If they are too tight, access to credit will be unreasonably constrained, potentially impacting economic activity and restricting some households from making large purchases that they can afford," Bullock suggested.

"If they are too loose, however, borrowers and lenders could find risks building on their balance sheets which, if large enough, might have implications for financial stability."

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
Tags: 
Home Loans Rba Insights

Comments

Be the first one to comment on this article
What would you like to say about this project?