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Australian home buyers may be able to borrow more as banking...

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    Australian home buyers may be able to borrow more as banking regulator proposes changes

    WILLIAM WEST/AFP/GettyImages
    • APRA, Australia’s banking regulator, has signalled it may relax serviceability assessments for new residential mortgage loan applications, potentially allowing home buyers to borrow more to fund the purchase of their property.
    • The regulator has proposed removing the minimum 7% floor rate that all new mortgage applications are assessed by.
    • APRA says the proposal is “not intended to signify any lessening in the importance on the maintenance of sound lending standards”.
    • The probability of RBA rate cuts in the months ahead has been scaled back marginally following the announcement.

    APRA, Australia’s banking regulator, has signalled that it may relax serviceability assessments for new residential mortgage loan applications, potentially allowing home buyers to borrow more to fund their purchase property.

    With mortgage interest rates in Australia already sitting at multi-decade lows, and likely to be reduced further given widespread expectations that the Reserve Bank of Australia (RBA) will cut official interest rates in the months ahead, APRA is considering removing the requirement that new borrowers are assessed on their ability to make repayments in a scenario where mortgage rates sit above 7%.

    “APRA has proposed removing its guidance that [lenders] should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7%,” the regulator said in a statement.

    “Instead, [lenders] would be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.”

    APRA is proposing that serviceability assessments from lenders incorporate an interest rate buffer of 2.5% above prevailing mortgage rates.

    “With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7% floor and actual rates paid has become quite wide in some cases — possibly unnecessarily so,” APRA Chair Wayne Byres said.

    “In addition, the introduction of differential pricing in recent years — with a substantial gap emerging between interest rates for owner-occupiers with principal-and-interest loans on the one hand, and investors with interest-only loans on the other — has meant that the merits of a single floor rate across all products have been substantially reduced.”

    “Although many of those risk factors remain – high house prices, low interest rates, high household debt, and subdued income growth – two more recent developments have led us to review the appropriateness of the interest rate floor,” Byres said.




 
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