Following some disappointing findings from the Australian Securities and Investments Commission (ASIC), The Reserve Bank of Australia (RBA) has noted that the tightening of lending regulations is putting standards back on the right track.

ASIC’s review of interest-only home loans, released in August 2015, looked at the big four banks alongside seven smaller lenders. While finding interest-only loans are more popular with investors and those on higher incomes, ASIC also discovered that lenders had been falling short of their responsible lending obligations.

Commenting on the findings, ASIC Deputy Chair Peter Kell said “lenders must have robust processes in place for assessing a customer’s ability to afford a loan, taking into account the increased repayments once the interest-only period ends”.

The findings are alarming, prompting recommendations from ASIC and the Australian Prudential Regulation Authority. Now, however, the RBA is beginning to see tougher lending regulations turning the slipping standards around.

In a November speech to the Australian Property Institute’s Queensland Property Conference on the Gold Coast, RBA Assistant Governor Malcolm Edey addressed the newly tightened rules.

“The indications to date are that the supervisory measures are having a beneficial effect on lending standards and are assisting in restraining new investor finance,” he said.

While put in place to protect borrowers and ensure all lending was carefully considered, the measures would also hopefully begin to cool the overheated property markets in Sydney and Melbourne. Mr Edey remains optimistic, but notes that it is too early to track much progress on that front.

“What we can say is that the risks in that sector are now being more prudently managed than they were a year or so ago,” he concluded.

In any case, those considering a home loan will likely appreciate the extra scrutiny on lending standards.

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