Here’s a bit of good news: you may be able to borrow more to buy your dream home after new APRA guideline changes.
Recently the Australian Prudential Regulation Authority (APRA) sent a letter to the major Australian Banks. This letter advised the Banks to remove their guidelines that propose borrowers be assessed by their ability to make repayments using an interest rate of 7.25% p.a. Instead, now the APRA is now encouraging Banks to use an interest rate buffer of 2.50%p.a. .
What do the new guidelines change?
CoreLogic researcher Cameron Kusher examines the impact of the new changes . He states “If someone is looking to borrow at an interest rate 3.90%, the borrower would previously have been assessed at a rate of 7.25%p.a. Now they would be assessed on their ability to repay at a lower 6.40%p.a. (3.90% + 2.50% buffer)” He said.
Kusher added that the proposed APRA changes are further in response to declining interests rates. “It has become more difficult to get a mortgage, that is partly because of this assessment,” he said.
Why the rate change?
APRA chair Wayne Byres said the operating environment for Australian Deposit taking Institutions (ADIs) had evolved since 2014, prompting APRA to review the current guidance.
“APRA introduced these guidelines to reinforce sound residential lending standards at a time of heightened risk,” said Mr Byres.
However, Mr Byres said with low interest rates, the gap between the 7% floor and actual rates paid has become quite wide, sometimes , “unnecessarily so”.
What does this mean for you?
Mr Byres said the changes are likely to increase the maximum borrowing capacity for a given borrower.
However, he warned that these changes do not signify any lessening importance the APRA places on lending standards.
“These changes will provide ADIs with greater flexibility, while maintaining prudence through the application process ” Mr Byres said.
A four-week consultation will close on June 18th, ahead of APRA releasing a final version of the updated guidance.
CoreLogic’s Kusher said the changes will allow some borrowers who can’t quite access a mortgage currently to get one. “Overall for the housing market, it will mean more people are able to get a mortgage” Kusher said.
If you’d like to find out how these changes may help you, give us a call. We’d love to help !