Up to a quarter of Kiwi mortgages are interest-only loans. But the Commerce Commission says it has no plans to investigate interest-only loans, as Australian regulators crack down on the products fuelling a property investment boom.

The Australian Securities and Investments Commission (ASIC) has announced it is investigating the loans as part of a broader review into home-lending standards. The probe will look into whether lenders are complying with consumer protection laws, including responsible lending obligations.

New Zealand's own responsible lending principles do not come into force until June next year, when the Credit Contracts and Consumer Finance Act (CCCFA) is amended. A spokesperson for the Commission, which enforces the CCCFA, said it had "no probe, or any plans to initiate one, similar to the one ASIC have announced". She also said loans taken out for the purposes of investment were unlikely to be consumer credit contracts, and thus not covered by the principles.

The Reserve Bank of New Zealand has made no mention of any possible move to rein the loans in, and a spokesman said it could not comment.

Up to a quarter of Kiwi mortgagors are currently treading water on interest-only loans, with a collective debt of roughly $40 billion to $50b.

While the proportion of new interest-only lending is unknown, the Reserve Bank recently began collecting data from the major banks and will publish it next year.

Across the Tasman, interest-only loans as a proportion of new housing approvals reached a fresh high of 42.5 per cent in the September quarter. ASIC deputy chairman Peter Kell said it was critical that lenders were not putting consumers into unsuitable loans that could see them end up with unsustainable levels of debt.

The New Zealand law change will be accompanied by a non-binding Responsible Lending Code, expected to be finalised by March. The code and principles together will beef up lenders' obligations to check whether borrowers can repay a loan.

Source: Stuff.co.nz