Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Thursday, 20 June 2019

Interest-only potential for growth

IO loans to rebound

The stock of interest-only loans fell to just 23 per cent of residential term loans by value in the March 2019 quarter.

That's the lowest since forever, and miles lower than the 39 per cent seen only two years earlier.

The figure will soon be approaching just 20 per cent. 

The quarterly flow of new IO loans by value was also under 15 per cent, with Q1 being the midst of the banking Royal Commission.

This was also the lowest in forever, and from a much lower total volume of loans too.

So it's by a huge margin the lowest volume of IO loans we've seen. 

Overall, the moves to clamp down on IO lending have been lethally effective - arguably even too effective - to the extent that with the regulatory caps now removed there is finally some upside potential for new interest-only lending to investors. 

IO loans with a mortgage offset facility make perfect sense for investor buyers from a taxation and cashflow management perspective. 

And with total household debt to income caps effectively now in place there's no logical reason why banks shouldn't return to writing more IO loans going forward.