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Mortgage serviceability changes afoot?
Summary and Impact
[Home buyers and investors will very likely soon be able to secure the mortgages, they were prevously declined, and left frustrated by the highly restrictive lending assessment criteria imposed by APRA.
Under current assessment criteria, high volumes of home buyers and investors have been extremely surprised to find they were unable to qualify for a loan, despite demonstrating a clear ability to service the mortgage at the interest rates the lender was offering and were readily available from a wide range of banks.
Anticipate significant upswing in loan applications as buyers, new and old re-enter the market]
Background
In a move that is most likely to benefit owner-occupiers and the wider property market, the Australian Prudential Regulation Authority (APRA) is proposing the 7 per cent serviceability buffer on home loans be removed.
It was imposed in an attempt to temper ballooning house prices and surging housing investor loan growth back in 2014.
The measures required the banks to assess a purchasers ability to service any home loan against a floor of 7 per cent' or 2 per cent above the rate paid by the borrower, whichever was higher.
Banks have typically added a further 25 basis points to the 7 per cent threshold taking it to 7.25 per cent and a buffer of 2.25 per cent above any loan facility.
If the changes were to go ahead, authorised deposit-taking institutions (ADIs) would in essence be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.
"APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk", according to APRA chairman, Wayne Byres "With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so."