ASIC has announced it will conduct a surveillance into the provision of interest-only loans as part of a broader review by regulators into home-lending standards.

The review will look at the conduct of banks and non-bank lenders and how they are complying with consumer protection laws, including their responsible lending obligations.

According to ASIC, interest-only loans as a percentage of new housing loan approvals by banks reached a new high of 42.5% in the September 2014 quarter (this includes owner-occupied and housing investment loans).

ASIC will focus on how lenders making interest-only loans address borrower risks, such as:

• Whether the borrower can only afford a loan because it is interest-only
• Whether the borrower can afford principal and interest repayments at the end of the interest-only period, and
• Whether the borrower understands the impact of not making principal and interest repayments.