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Welcome to Kaplan Professional’s Q&A series. To provide an overview of APRA’s tightening of residential mortgage lending practices and the practical implications of the changes for lenders and customers alike, we’re joined by Sophie Grace Compliance and Legal’s manager (licensing and compliance), Quynh Truong.

Question 1

Could you please take us through APRA’s perceived risks in the residential mortgage market that prompted the tightening of the lending rules?

APRA did some studies, and market research and found that interest-only lending represented nearly 40% of the residential mortgages lent by the authorised deposit-taking institutions [ADIs] — the banks. They found that this rate was really high in comparison to international standards and historical standards, so this prompted some questions and a warning.

Interest-only loans are perceived as a higher risk because most are for quite short periods — five or so years. [Many interest-only lenders encounter] what they term “payment shock” at the end of the term where there’s a huge jump in the repayments that have to be made once the interest-only loans revert to principle and interest. I don’t think a lot of those issues were being taken into account by banks when they were doing their responsible lending assessments and serviceability assessments.

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Quynh Truong

Quynh Truong works with Sophie Grace Pty Ltd with a focus on compliance. Quynh specialises in obtaining ACL and AFSL applications and variations for clients as well as providing ongoing compliance support in the form of compliance program implementation and reviews. Prior to joining Sophie Grace Pty Ltd, Quynh worked as a solicitor in the areas of compliance, banking and finance, debt recovery and commercial litigation. Quynh has a Bachelor of Medical Science from the University of New South Wales, a Master of Law and Legal Practice from the University of Technology, Sydney and a Graduate Diploma in Corporate, Securities and Finance Law at the University of Sydney. She has been admitted as a solicitor in NSW.