Via UBS’s excellent George Tharneou:
The removal of the Interest Only cap is unlikely to result in a re-acceleration of housing credit growth in our view. The major banks should continue to tighten underwriting standards as they move towards complying with Responsible Lending laws (i.e. verifying customer income and expenses) in response to the Royal Commission and will result in further reductions to customer maximum borrowing capacity.
…Further, while the caps will now be removed for most ADIs, APRA has cautioned them to “maintain prudent internal risk limits”, and has made it clear that “a re-acceleration in interest-only lending at an industry-wide level would raise systemic concerns. In such a scenario, APRA would consider the need to apply industry-wide measures in response.” We therefore view the removal of the Interest Only cap as largely irrelevant and we leave our housing credit growth forecasts unchanged.
