On the 5th of July, the Australian Prudential Regulation Authority (APRA) announced that lending restrictions on lenders were being relaxed, effective immediately. What this means is that it may be easier for a hopeful purchaser to secure a loan, in what is yet another injection of positivity in a market that, for all intents and purposes, seems to be moving up and up.
A key aspect of the relaxed lending rules includes scrapping the minimum 7% interest “stress test” for loan applications, which assessed whether a borrow would be able to afford to make repayments with a minimum interest rate of 7%. Banks will be able to set their own serviceability floor rate, with an interest rate buffer 2.5% over the advertised interest rate, whichever of the two ends up being higher.
For example, if Bank X set their servicing floor at 5.50%, and you sourced a home loan with an interest rate of 4%, Bank X would assess your repayment capacity at an interest rate of 6.5% (4% + 2.5%), as this is higher than the servicing floor of 5.50%. However, if the advertised interest rates were only 2%, your capacity would be based on the 5.50% servicing floor, as 5.50% is higher than 4.5% (2% + 2.5%).
Since the APRA decision the big four banks have all announced reductions in the floor rates used to assess repayment capacity for home loan applications, with all four adopting buffer rates of 2.5%.
- Commonwealth Bank: 5.75%
- Westpac: 5.75%
- NAB: 5.5%
- ANZ: 5.5%
