Buyers to be impacted by new home loan rules
TIGHTER lending rules have been introduced to reduce the maximum amount applicants can borrow for a home loan.
In October, the Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
Lenders are now expected to assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate.
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APRA Chair Wayne Byres said this is a targeted and judicious action designed to reinforce the stability of the financial system.
“In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future.
“While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building.
“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. With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted.”
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APRA said the decision reflects growing financial stability risks from authorised deposit-taking institutions (ADIs) residential mortgage lending and is in response to the current environment of very low interest rates and rapidly rising house prices and household credit growth expected to exceed household income growth in the period ahead, further adding to concerns around overall household indebtedness.
APRA’s view is that the interest rate serviceability buffer is the most appropriate tool to use in the current circumstances.
The move is supported by other members of the Council of Financial Regulators (CFR), comprising the Reserve Bank of Australia, the Treasury and the Australian Securities and Investments Commission.
APRA also consulted with the Australian Competition and Consumer Commission in determining its course of action.
For more information see the APRA website here.
