Via UBS:
Interest Only loans have fallen to 30.5% of Bank approvals APRA’s cap on Interest Only (IO) lending flow is starting to take effect. During the June quarter the Banks’ reported 30.5% of mortgage approvals were for IO loans – down from 37% over the last 12 months. This is the lowest percentage of IO approvals since the Financial Crisis. However, in absolute terms IO lending is only back to March 2016 levels. That said, it is worth noting that this approvals data is not consistent with the 30% APRA cap, and it is likely the banks still have work to do to get under their Macro Prudential limits – APRA’s cap is broader, based on drawdowns (not approvals) and includes bridge facilities, construction loans, lines of credit and limit increases.
Can non-banks fill the IO gap left by Macro Prudential rules? There has also been discussion in the market as to whether the Non-Banks can fill this IO demand gap left as a result of the APRA caps. We do not believe this is the case. Over the last 12 months, the ADIs approved ~$385bn of mortgages. If IO approvals need to fall by ~$35bn to meet Macro Prudential caps (37% to <30%) we do not believe the non-banks have the funding capacity via warehouses, RMBS, private investments or other means to fill this gap. Further, the regulators reportedly appear likely to extend their umbrella to capture such flows given the risk to Financial Stability.
