LENDERS could dump owner occupier interest-only loans for good as more mortgage providers force customers to pay down their debt

Already many lenders are dumping interest-only loans altogether for those with a mortgage on their own home — this includes lender Citi who this month banned owner occupier interest-only loans and lender ME who will only allow this type of loan if the customer has a loan-to-value ratio that is not greater than 90 per cent.

Some lenders are dumping interest-only loans altogether making it harder for first-time borrowers to enter the property market.

And all types of borrowers are continuing to get stung by rate hikes with one of the nation’s biggest lenders Westpac announcing it was hiking fixed rate loans across both owner occupier and investor products.

The banking regulator, the Australian Prudential and Regulation Authority is continuing to flex its muscles and force lenders to clamp down on interest-only lending, limiting it to only 30 per cent of all residential lending.

Home Loan Experts’ managing director Otto Dargan said he expects more owner occupiers to be stopped from making interest-only repayments and be forced to start paying back the principal.

“It’s likely most banks will stop offering interest-only repayments for owner occupied home loans,’’ he said.

“The banks are doing two things to push customers to principal and interest repayments — firstly by putting up the rates we’re seeing more of our borrowers choose P & I rather than interest only.

“Secondly the banks are questioning anyone with an owner occupied home loan as to why they need interest- only payments.”

Recently CBA increased fixed rate deals even further, pushing some offers on interest-only repayments for investors up by 0.5 per cent, while fixed interest-only repayments for owner occupiers increased by 0.25 per cent.

Paying interest only as an owner- occupier is set to become a lot harder and more expensive, particularly for anyone with less than 10 per cent equity in their home.

We will see other lenders follow Citi’s lead by either ending this offering for new customers or Westpac’s strategy of increasing the rates of these loans so they become less attractive.

A recent market analysis has found on a $300,000 30-year home loan the average principal and interest repayments for owner occupiers is 4.36 per cent and monthly repayments are $1,495.

For investors, the most common type of loan is interest only and the same $300,000 loan attracts an average rate of 4.51 per cent, making monthly repayments $1,128. 

Accreditation Logos