CBA Tightens Policy on Interest-Only Loans

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Georgia Wilkins| Sydney Morning Herald| 19 May 2017

The Commonwealth Bank has tightened its policies on interest-only home loans, removing incentives to refinance such loans and demanding that new customers hold larger deposits.

The decision of the country’s biggest lender follows similar moves by Westpac and ANZ Bank.

CBA has tightened its lending policy for customers who want to borrow on an interest-only basis. Photo: Michael Clayton Jones

The changes, which come into effect on June 10, were announced two months after the banking regulator announced new restrictions on interest-only lending.

CBA said it would no longer offer a $1250 rebate to interest-only customers who want to refinance their loan with the bank.

Australia’s lenders are being forced to reduce the amount of interest-only loans they provide under new rules announced by the Australian Prudential Regulation Authority in March.

The rules require the banks to limit their interest-only loan book to 30 per cent of total lending.

The new cap is part of efforts by the regulator to cool demand in the housing market and clamp down on interest-only lending, which the regulator deems higher risk than traditional home loans.

Currently the country’s major banks lend close to 40 per cent of all loans on an interest-only basis.

CBA said the changes, which only apply to new customers, would reduce incentives for interest-only borrowing.

“These changes follow APRA’s announcement in March for banks to reduce the number of interest-only home loans, and are aimed at encouraging customers to switch to principal and interest, where appropriate, to help them own their homes faster,” a spokesperson said.

Earlier this week, Westpac announced similar changes to its lending policy, telling brokers it would no longer accept interest-only applications from owner-occupiers with a deposit smaller than 10 per cent. It previously accepted anything above 5 per cent.

Owner-occupiers will still be eligible for a principal and interest loan with a five per cent deposit, subject to mortgage insurance, the lender said.

ANZ Bank has also changed its requirements on interest-only lending, to demand a 20 per cent deposit for home loans, effective from June 18.

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