John Symond, chairman of Aussie Home Loans, argues that interest-only loans should be banned from potential owner occupiers.
He added that he understands the concerns of regulators on big price hikes in Sydney due to some investors.
Symond suggested that the best way to address the heated property market is for the government to review tax breaks for investors in property and tax impediments on building a home.
"I think there is a general consensus that interest-only loans need to be pulled back," he said, as quoted in Fairfax media.
"Owner occupiers - normal mums and dads taking home loans - I would ban interest-only loans to them. If you can't afford to pay interest and principle, then you shouldn't get a loan."
Over 43% of all new loan approvals to banks with loan books bigger than $1bn in Q4 2014 were for interest-only loans. The Reserve Bank of Australia confirmed about 64% of these went to investors and 31% went to owner occupiers.
"I don't fully understand where the Reserve Bank and APRA are coming from and why loans to investors are the root of all evil," he said.
Symond noted that Aussie Home Loans processes an average of $3bn in home loan approvals and pre-approvals on a monthly basis. Thirty-per cent of these mortgages go to investors, which is about the industry average now.
He added that “investors get most of the interest-only loans because they are not planning to keep the house for more than a few years. In general, however, they are low-risk borrowers that have a full deposit and other properties or cash to back them”.
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