07 October 2021
With plenty of coverage across the recent changes to lending criteria, we thought we would give a simple outline of the changes and how they could affect our clients.
What has changed?
This week, the Australian Prudential Regulation Authority (APRA) has announced tougher serviceability tests for home loans, which will make it harder for some borrowers to get a mortgage. In a letter to banks on Wednesday, APRA increased the minimum interest rate buffer from 2.5 to 3 percentage points. The letter to banks outlined that “This buffer provides an important contingency for rises in interest rates over the life of the loan, as well as any unforeseen changes in a borrower’s income or expenses.”
APRA is concerned about the number of buyers borrowing over six times their income to purchase property, and with the increase in property prices across most of the country, the regulator was forced to step in to help. The President of the Real Estate Institute of Australia Wayne Byres, has welcomed the change “More than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead.”
What does this mean?
From November 2021, banks will be required to test whether new borrowers will be able to make repayments on the loan at 3 percentage points higher than the current rate. For example, if you applied for a mortgage with an interest rate of 2 per cent, the bank would test whether you had the ability to service this loan at a rate of 5 per cent.
What is the impact on buyers?
APRA has suggested that this may reduce maximum borrowing capacity for the typical borrower by around 5 per cent, however they also state that this will have no impact on mortgage interest rates.
Need more information?
Get in touch with Simon Orbell and the team at Smartmove Mortgage Advisors here.
