APRA has suggested banks change the way they assess customers’ ability to meet their mortgage repayments in a move the prudential regulator says would probably let people borrow more.
The Australian Prudential Regulation Authority on Tuesday proposed removing guidance that customers should be able to repay their loan if their interest rate increased to at least 7 per cent.
It suggested recommending lenders instead make serviceability calculations using a 2.5 per cent rate buffer.
APRA chairman Wayne Byers said historically and persistently low interest rates had left the 7.0 per cent mark unnecessarily high, while the gap between owner- occupier and investor rates meant a single rate was no longer as appropriate.
“The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards,” Mr Byers said in a statement.
“Rather, it is simply recognition that the current interest rate environment does not warrant a uniform mandated interest rate floor of 7 per cent across all products.”
The official cash rate was 2.5 per cent when APRA first introduced the serviceability guidance in December 2014 in an effort to reinforce sound residential lending standards.
It has since been at its historic low of 1.5 per cent for nearly three years and is tipped by economists to fall as low as 1.0 per cent by the end of 2019.
In the last week alone, 12 lenders cut fixed owner-occupier rates, while nine lenders cut fixed investment rates, according to Canstar.