Home seekers may soon have an easier time getting a home loan after the country’s banking regulator responded to urgent calls to reform the current restrictive lending environment.
The Australian Prudential Regulation Authority announced it is considering scrapping a rule requiring mortgage customers’ lending capacity be assessed at inflated interest rates.
The regulator has said it will review its 7 per cent minimum interest rate serviceability buffer to a level determined by banks and other lenders.
It’s a move that will likely increase the maximum amount new mortgage customers can borrow.
The buffer was originally instated to ensure mortgagees were able to meet repayments on interest rates higher than current levels (some lenders offer standard variable rates as low as 3.47 per cent).
It was introduced when the Sydney and Melbourne housing markets were booming in late 2014 and was designed to help contain rising prices.
APRA’s decision to reconsider the current policy suggested it was giving in to pressure from the banking sector, which had been calling for an urgent review.
Restricted access to credit has been one of the driving forces behind the current housing downturn, with fewer buyers able to purchase properties listed at higher prices.
Sydney’s median house price has fallen nearly 14 per cent since peaking in July 2017, while national prices have fallen by about 6 per cent over the past year.
The proposed removal of the buffer followed an earlier announcement from APRA that it would remove its 10 per cent growth cap on investor lending.
The regulator will also be easing its 30 per cent limit on interest-only lending.
APRA chairman Wayne Byres said the current lending environment was markedly different to 2014 and the existing rate buffer may not be as useful anymore.
“APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk,” Mr Byres said.
“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases — possibly unnecessarily so.”
Property Council of Australia chief executive Ken Morrison welcomed APRA’s review and said it would be timely considering the merits of the buffer had been reduced in the current market.
“(The move) recognises the changed circumstances in the current interest rate environment for lenders and the residential housing market,” Mr Morrison said.
“It makes sense to revisit some of the measures originally put in place at the peak of the housing market. Different markets need different settings.
“As APRA notes, this is not about easing sound lending standards but recognition that the interest rate environment has changed with interest rates now at a record lows, and likely to remain so.”