APRA is clamping down on interest-only loans in a bid to douse the burning property market.

The regulator says interest-only loans must now be restricted to 30 per cent of new residential mortgage loans.

Interest-only lending makes up about 40 per cent of residential mortgage lending by banks, something APRA considers “quite high” by international and historical standards.

It says the new measures are designed to ensure lenders recognised the heightened risk in the lending environment.

“APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile,” chairman Wayne Byres said in a statement.

“We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each [lender], and will consider the need to impose additional requirements... when the proportion of new lending on interest-only terms exceeds 30 per cent of total new mortgage lending.”

APRA is also limiting interest-only lending at loan-to-value ratios above 80 per cent.

Investor lending is currently almost three times the 10 per cent speed limit APRA imposed in 2014. 

APRA still holds that the 10 per cent benchmark for growth in investor lending is an appropriate constraint for “balancing the need to continue to moderate new investor lending with the increasing supply of newly completed construction which must be absorbed in the year ahead”.

The regulator also has its eyes on higher risk mortgage lending including lending at high loan-to-income ratios, lending at a high loan-to-valuation ratios and lending at very long terms or long interest only periods of beyond five years.