ANZ raises interest-only mortgage rates as housing market cools

[SYDNEY] ANZ Banking Group said on Friday it will increase variable interest-only home loan rates by 30 basis points as regulators clamp down on risky lending in Australia's red-hot housing market.

The move follows out-of-cycle rate hikes announced by Australia's major banks in March even as the country's central bank has held rates at a record low 1.50 per cent after last easing in 2016.

The change will bring ANZ's interest-only home loan rates to as high as 6.26 per cent.

At the same time, the bank said it will lower variable interest rates by five basis points on principal and interest home loans to 5.20 for owner-occupiers and 5.80 per cent for investors. All changes are effective June 16.

"We need to manage our regulatory obligations and we are now required to hold additional capital against our home loans," ANZ Group Executive Australia Fred Ohlsson said.

Australia's 'Big Four' banks including ANZ are heavily reliant on mortgages for earnings growth. However, regulators have intensified pressure in recent months to slow down lending, in particular interest-only loans which are massively favoured by speculative investors.

Regulators are worried excessive debt in the property market will hurt spending elsewhere in the economy as the nation's household debt-to-income ratio has climbed to an all-time peak of 189 per cent.

Late in March, the Australian Prudential Regulatory Authority (Apra) asked banks to limit new interest-only lending to 30 per cent of total new residential mortgage lending, from 40 per cent now. It also demanded that banks limit investor credit to "comfortably remain below" a previously-set cap of 10 per cent annual growth.

The measures seem to have worked. Home prices in Sydney and Melbourne - two of the hottest markets - have eased since April although they are still up 11 per cent and 11.5 per cent, respectively, from a year ago.

Separately, data on Friday showed housing finance fell 1.9 per cent in April for a third straight month of falls.

REUTERS