Major banks make changes to IO lending

In an update to its brokers this week, ANZ announced that from Monday, 29 May, interest-only availability for both owner-occupier and investment lending will be restricted to maximum 80 per cent LVR for new and increased lending.

This will include top-ups and external refinances, and apply to all of the bank’s home loan and residential investment loan products.

Further, for all ANZ home loan and residential investment products, the maximum interest-only period will be reduced to five years for investment lending, to align to the maximum for owner-occupier lending.

The renegotiation fee for customers seeking to switch from interest-only to principal and interest repayments will be waived, while interest-only lending will no longer be available on the ANZ Simplicity PLUS loans (for both owner-occupiers and investors).

Another change that will later take effect on Sunday, 18 June, will be the application of a minimum rental/board expense of $375 per month to residential investment loans for all borrowers not living in their own home. This will affect the bank’s residential investment loan products and equity manager account.

For existing applications, ANZ highlighted the following to brokers:

• For new applications in the system that are submitted on or after Monday, 29 May 2017, the new policy/product parameters will apply
• Applications submitted to Credit Assessment prior to Monday, 29 May 2017 will be assessed under previous policy/product parameters
• If an application extension is needed, requests must be made by Tuesday, 1 July 2017 to apply to a previous policy

Changes to the bank’s Simplicity PLUS products will only apply to new lending for new and existing customers and external refinances, and customers with existing lending up to 90 per cent LVR will still be able to renew their loan provided there are no additional funds and the loan adheres to the maximum five-year interest-only term.

Similarly, in a recent update to its brokers, Westpac announced that effective Monday, 15 May, the maximum LVR (inclusive of any capped mortgage insurance premium) for owner-occupied interest-only will be 90 per cent. This applies to both new loans and further loans (loan increases and top ups). 

"In this low interest rate environment, we are offering competitive interest rates to customers who make principal and interest repayments to encourage them to pay down their mortgages and own their homes sooner. The maximum LVR for owner-occupiers making principal and interest repayments remains at 95 per cent subject to mortgage insurance," Westpac explained to its brokers.

Further, Westpac made adjustments to its mortgage insurance equity rule for investment properties, effective Saturday, 20 May 2017.

The verification requirement for 10 per cent equity where the application is for a mortgage insured investment loan has been updated to:

• Any application for investment loans that have a total LVR  of over 90 per cent will require a minimum equity of 10 per cent to be held in another property post drawdown

The 10 per cent equity may be validated from either:

• ​A property being taken as security – valuation used for that security and new loan limit
• A property not being taken as security — customer estimate and statement showing loans balance
• Additionally, switch servicing activity from a repayment basis of principal and interest to interest-only will not be permitted within the first 12 months of the loan drawdown. 

"Should the customer require a switch to IO within 12 months of drawdown, then the loan will require full re-origination," the bank said.

[Related: Interest-only mortgage glut sparks default risk]