In October 2021, Australia’s banking regulator APRA updated the lending rules, which – in short - will reduce the amount you can borrow for a mortgage.

Let’s go through the details here.

 

What is APRA?

APRA (Australian Prudential Regulation Authority) is an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia.

Find out more about APRA here: https://www.apra.gov.au/

 

What’s Happening?

When you apply for a mortgage, lenders - like your bank - check your ability to repay the loan not on the actual interest rate, but on the interest rate PLUS a buffer.

 

To counter rising risks in home lending, APRA has told lenders to increase the minimum buffer from the usual 2.5 percentage points to 3 percentage points ABOVE the home product rate.

 

What does that mean?

So, if you applied for a loan with a 2.09% interest rate – your lender would assess whether you could repay the loan if the rate increased by 3.0 percentage points – to 5.09%.

 

Translated - this means that your average borrowing capacity is reduced by around 5%.

However, each person’s situation is unique. Some borrowers might not experience any impact at all, some may experience more.

 

Wait, what rising risks?

We all know that the Australian housing market is booming, and house prices across the board have been rapidly rising.

This, coupled with extremely low interest rates, means that pressures on household indebtedness remain heightened.

Household credit growth is expected to exceed household income growth, which has added to APRA’s concerns around overall household indebtedness.

Essentially, a more highly indebted household sector presents risks to future financial stability.

This is because indebted borrowers are likely to be less resilient to shocks, including:

• rising interest rate
• a reduction in income

 

What can I do?

We highly recommend getting help from expert mortgage brokers, who will:

• Maximise your borrowing capacity, so you can buy your dream home
• Show you how your borrowing capacity can change from lender to lender
• Compare dozens of lenders and hundreds of loans to find the best fit for you

 

Want to know more?

Check out the full press release here: