Non-bank lenders could tweak IO policies, warns broker

Speaking to the Mortgage Business’ sister title, the Smart Property Investment Show, Ross Le Quesne from Aussie Parramatta suggested that the new powers given to the Australian Prudential Regulation Authority (APRA) by the federal government could impact borrowers.

Mr Le Quesne made the comments while speaking to SPI Show host Phil Tarrant about the recent changes in rates and credit policy across many of the major and non-major banks in recent weeks, especially for interest-only loans.

He said: “[The] date is quickly approaching where the banks need to have the flow of new business to be 30 per cent of their new mortgages be interest-only [as per APRA’s latest curbs]. So, a lot of what we're seeing in the market [is] in terms of reduced loan-to-value ratios, and different pricing for interest only… and we've also seen a raft of changes from other lenders over the last few months where there's a differential pricing between what you're paying for a principal and interest loan, and what you're paying for an interest-only loan… So what we're seeing is, because of those APRA requirements, there's been a big shift in terms of rates on interest-only loans.”

The Aussie broker continued: “And then we're also seeing APRA is then going to have further governance over some of the non-bank lenders as well.

“So, you can expect that, moving forward over the next few months, you'll see changing policies for the non-bank lenders. So, where investors are seeing the likes of, say, Pepper and Liberty... getting [them] finance, you may see their ability to get finance with those lenders will get more difficult as well.”

His comments come off the back of those made by Pepper’s former chief executive Patrick Tuttle, who has previously warned that the government’s plans to extend APRA’s prudential oversight to the non-banks could have serious unintended consequences, accelerating a credit crunch and driving a “sharper than anticipated” housing market correction.

“What problem is the government seeking to fix?”, Mr Tuttle said in May. “Fair enough that APRA has implemented macroprudential controls to limit the overall proportion of ADI lending directed towards investment property loans and interest-only loans. This has eased some excessive lending volumes in these loan products across the broader market, particularly within the major banks,” Mr Tuttle said.

“That said, is the government, through the auspices of APRA, now seeking to effectively dictate consumer credit and lending policies and practices for all non-bank financial institutions in Australia? If so, when was this objective ever stipulated in APRA’s mandate? Isn’t ASIC responsible for overseeing Australia’s non-bank financial institutions, their compliance with responsible lending practices, and their adherence to the consumer credit code?”

Mr Tuttle believes the potential unintended consequences of APRA’s intervention of the non-bank lenders is a cause for concern. It could result in APRA imposing excessive controls, which he fears would impede the functioning of Australia's non-bank sector. 

“It will also potentially create regulatory chaos between APRA and ASIC,” he said.

He concluded: “By seeking to excessively regulate the non-bank sector which is already subject to comprehensive regulation by ASIC, there is a real risk that the supply of credit to legitimate borrowers for legitimate purposes will dry up altogether, depriving consumers of genuine choice, and inadvertently accelerating a credit crunch and a sharper than anticipated correction in house prices.”

Despite these concerns, however, several figures in the non-bank sector have said that they are not worried or wary of APRA’s new oversight, with some saying it is "entirely appropriate" for APRA to be given powers over the non-bank sector.

[Related: APRA’s powers are limited, warns Byres]