From Morgan Stanley:
A reliance on interest only loans: Our Chart of the Week shows that Australians are heavy users of interest only loans (IOLs), which have accounted for ~38% of the major banks’new loan approvals since the start of 2008. The IOLshare increased to ~44% in 2015, but eased to ~39% in 2016 due to the speed limit on investment property loans (IPL). At the same time, loans with an LVR>90% still make up ~9% of approvals.
A potential~A$36bn contraction in IOL, unless P+Igrows: APRA’s latest round of macro-prudential measures require that IOLs are no more than 30% of new loans (refer Mortgages: Time for Action). Assuming no increase in principal and interest repayment loan (P+I) approvals, the majors’new IOLapprovals would need to fall by ~A$36bn to ~A$77bn in 2017, back in line with the 2009-2012 level. In practice, we would expect a pick up in P+I, so the contraction in credit is unlikely to be this large. We note that every ~5% or ~A$8bn increase in new P+I approvals would allow an extra ~A$4bn of new IOLs.
