APRA announces proposal to scrap inflated interest rate assessment for home borrowers

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With many confident the RBA will be cutting interest rates at the upcoming June meeting, Australia’s banking regulator APRA (Australian Prudential Regulation Authority) has announced a proposal to scrap a rule requiring mortgage customers’ lending capacity to be assessed at an inflated interest rate.

Introduced in 2014 as a measure to contain rising house prices and housing investor loan growth, the rule pertains to how a loan is assessed.  To allow for a buffer, banks have been required to assess a home loan customer at a minimum rate of 7%.

In fact, some banks were even adding another buffer, to assess a borrower at 7.25%  This is despite interest rates being at record lows.

Under the new proposal, the rate a bank can now charge a would be home loan customer can be lowered to a level determined by banks and lenders.

One of the major reasons for the recent downturn in the property market we have experienced over the past 18 months has been the inability of buyers to source finance.

The existing rule required banks to test prospective buyers against their ability to service a loan at a minimum 7% interest rate, even though the actual home loan rate was often much less.  With the rising costs of living, many home buyers simply did not pass the 7% test.

APRA chairman Wayne Byres clarified that the whilst the move could increase the borrowing capacity of customers, APRA will still be closely monitoring the market to ensure sound lending standards remain in force. That said, he said the change will provide banks and lenders with more flexibility in setting their own serviceability floors.

Market experts welcomed the announcement, one that is likely to encourage more people to apply for and obtain a mortgage.

CoreLogic’s Cameron Kusher said the proposal is just aligning with where interest rates currently sit, with the current low level interest rates likely to remain so for the longer term. He said the serviceability assessment currently in place had made it difficult for many people to get a loan.


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Wendy Chamberlain from Chamberlain Property Advocates





By Wendy Chamberlain
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With a passion for all things real estate spanning over 20 years, Wendy loves that her role as a Buyers Agent and Sellers Advocate gives her buying and selling clients an experienced voice they can trust when it comes to negotiating to buy or sell something as important as their home or investment. Wendy considers it a privilege to be asked to help others realise such an important goal as home ownership and to be trusted with that honour. Get in touch today via www.wendychamberlain.com.au for a no obligation chat about how Wendy can work with you and help you save time and money to secure your new home sooner.