The banking regulator has announced plans to remove the cap it placed on property lending to investors three years ago in response to booming borrowing levels and an overheating property market.
The banking regulator has announced plans to remove the cap it placed on property lending to investors three years ago in response to booming borrowing levels and an overheating property market.
The Australian Prudential Regulatory Authority (Apra) on Thursday said that improved lending standards would allow the temporary cap on new investor lending to be removed, with the focus instead to be on quality standards in lending institutions.
Apra imposed a limit on investor lending growth of no more than 10 per cent in 2014 following a surge in bank lending for property investment.
In a letter sent to banks on Thursday, Apra chairman Wayne Byres said the 10 per cent limit would be removed from July 1, if an authorised deposit-taking institution (ADI) had been operating below the benchmark for six months.
Apra must also receive written assurance of the strength of an institution's lending standards, including meeting guidelines on borrowers' ability to repay loans.
Banks must confirm by the end of the month that they are meeting those expectations on lending.
Mr Byres said that, with risks in the market still heightened, banks had more to do to improve borrower oversight and maintain a firm grip on lending prudence.
Apra now expects lenders to limit the proportion of new lending at very high debt-to-income levels, and put limits on maximum debt-to-income levels for individual borrowers - issues highlighted in recent concerns aired about "liar loans" with incorrect documentation, and flawed home loan applications.
Banks that fail to meet the new requirements will face greater supervision from Apra and that failure to rein in any excessive lending could lead to the requirement to strengthen capital buffers or other the use of industry-wide measures.
Apra's limit on interest-only investor loans, imposed in March 2017 and credited with cooling the red-hot Sydney and Melbourne property markets will remain in place.
