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The mortgage landscape changes for borrowers...
Summary and Impact
The Australian Prudential Regulation Authority recently wrote to banks proposing the 7 per cent serviceability buffer on home loans be removed. This is welcomed news for borrowers and the property market.
For those that understand the significance, the impact is likely to lift the market through better buyer sentiment and loan accessibility
Let's quickly unpack this for you. This is an exceptionally positive forward step for the Australian property sector as we suggested in our last post.
~ APRA’s serviceability buffers were introduced back in December 2014. It's primary purpose was a way of cooling the housing market, and protecting banks lending books. It required banks to assess all home loans against a floor of 7 per cent or 2 per cent above the rate paid by the borrower. (whichever was the higher).
The newly proposed change would likely mean the 7 per cent buffer would be replaced by a simpler 2.5 percentage point step up on current rates for all borrowers. So for loans with rates that are markedly below the 7 per cent floor (and with the recent RBA rate reduction to a cash rate of 1.25% there are many, many products), this would mark a significant easing in lending.