Whilst Australia's regulators have clamped down on interest-only loans over the past year, here in New Zealand we still don't even know how many are out there or how fast use of them is growing.
A year ago the Reserve Bank said it had been collecting data on banks' interest-only loans for a few months and planned to start publishing it sometime this year. But the Reserve Bank's timeframe has slipped as it strives to ensure "consistency and reliability" in the data.
A Reserve Bank spokesman told interest.co.nz last week this data wasn't now likely to be publicly available, presumably via the Reserve Bank's website, until early 2016.
"At the moment we’re working to ensure consistency and reliability in the data that comes from many different sources. The plan is to publish when we’re confident that the data is reliable but we’re not there yet," the Reserve Bank spokesman said.
Recent figures disclosed by ANZ and BNZ show the percentage of their residential mortgage books paying interest-only have risen to 23% from 21% over the past two years in ANZ's case, and to 23.8% from 21.7% over the past three years in BNZ's case.
After interest-only loans, as a percentage of new housing loan approvals by Australian banks, hit a record high of 42.5% in the September quarter last year, the Australian Securities and Investments Commission (ASIC) announced it would "conduct a surveillance" of the provision of interest-only loans.
At the time ASIC said although interest-only loans could be appropriate in the right circumstances, they could also raise a number of risks, including; Whether the borrower can only afford a loan because it is interest-only, whether the borrower can afford principal and interest repayments at the end of the interest-only period, and whether the borrower understands the impact of not making principal and interest repayments.
Subsequently in August this year ASIC released a report saying lenders providing interest-only mortgages needed to "lift their standards to meet important consumer protection laws." It said demand for interest-only loans had surged by about 80% since 2012. The review looked at how consumers were assessed for loans by lenders with a focus on the affordability of the loans over the longer term.
"The review found that interest-only loans are more popular with investors and those on higher incomes, and that delinquency rates are currently lower for interest-only home loans. However, ASIC also found that lenders have been falling short of their responsible lending obligations in the provision of interest-only loans. Lenders are often failing to consider whether an interest-only loan will meet a consumer's needs, particularly in the medium to long-term."
ASIC said all 11 lenders it looked at, including the parents of New Zealand's big four banks, had either changed their practices in line with ASIC's recommendations, or had committed to implementing necessary changes over coming months.
The Australian regulator has also unveiled an infographic detailing how interest-only mortgages have grown in Australia, how much people are borrowing for an interest-only loan, and how much they will really pay for this type of loan.
Here in New Zealand the Commerce Commission, which enforces consumer credit laws and the Responsible Lending Code, would be the regulator to undertake an ASIC style probe into interest-only lending, should one be deemed necessary. But until we have reliable data, it's unclear whether this is the case.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
3 Comments
So much drivel over the bleedin' obvious, Interest only loans are attractive to investors because of the tax arrangements. Paying down principle is money going to no effect when the intent is to turn the property over in a timeframe much shorter than the term of the mortgage. Minimum possible commitment of equity and interest only repayments are the cornerstone of the speculative flipping strategy. With almost 25% of the market made up of this type of activity it is little wonder distortions exist. Let them do this in the commercial property and new build residential sector because business is business but existing residential property would be better off without this opportunistic, parasitic blight.
as ever the data when it does appear will be full of holes - and inadequate to provide anything more than a glimpse of what's happening - I have 4 interest only loans,, a revolving facility - all of shortish fixed terms which I roll over grabbing the best rates - I also have one repayment loan - which is repaying at over $4k a month - so on this survey 80% of loans are fixed interest - of course I could spread the repayment amount over every loan - but I find it easier and more economic to do it this way - you would get a different result comparing the % of Loans as opposed the % of money borrowed and again if you compared it on number of properties with interest only loans as opposed to number of properties with a mixture of loans and again number with repayment loans only - not to mention revolving mortgages. In general the public is a little smarter now and more people have multiple loans on the same property than previous , splitting their risks And yes spinach its on three properties - one I live in - the other two are long term cashflow positive rentals in Hamilton which I have no intention of selling in the next ten years.
I would think the vast majority of mortgage lending in Auckland is interest only - how could anyone afford the principal payments. The fact that most investors use interest only proves their main objective is to make a capital gain. There has been a move recently with NZ banks to seek principal and interest loans.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.