NAB toughens stance on interest-only loans

NAB has announced that, from July 2017, it will automatically decline mortgage customers who want to borrow a high multiple of their income on an interest-only home loan. While NAB has not specified what would be considered a high multiple, the move signals a further crackdown on interest-only loans amid regulator fears that a rise in interest-only lending could heighten risks for the economy if borrowing costs increase.

“We’re conscious of concerns raised by regulatory bodies about Australia’s household debt-to-income ratio, which has risen significantly over the past decade,” Meg Bonighton, NAB General Manager of Home Lending, explained.

“With this new measure, we will strengthen our ability to ensure we’re providing our customers with the right home loan for their situation, and that they can meet their home loan repayments today and into the future,” she said.

In March 2017, APRA announced it would require lenders to cut the share of interest-only lending to less than 30% of new loans, down from around 40% previously, as well as urged banks to restrain their lending among high risk segments such as those with high loan-to-income ratios.

According to RFi Group data, 1 in 10 borrowers use more than 50% of their monthly income to service their mortgages.

Source: Australian Mortgage Council June 2017

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