July brought with it news that has effectively opened the doors for prospective and current home owners to access bigger mortgages by borrowing more.

The Australian Prudential Regulation Authority (APRA) has relaxed stringent lending restrictions on lenders by scrapping the “stress test” rule. Introduced in 2014, the rule required banks and other lenders to assess customers on their ability to manage repayments with an interest rate of 7.25 percent.

By scrapping the rule, APRA has essentially given banks the freedom to set their own serviceability buffers, also known as an “assessment rate”. However, the regulator now stipulates that lenders ensure borrowers could still afford to repay their loans if interest rates rise to at least 2.5 percentage points higher than what they are at the time of application.

Following the announcement, lenders were quick to act, dropping their floor rates and assessment rates, in turn increasing the potential mortgage amount available to prospective borrowers across the board.

How much extra can people borrow?
Along with the removal of the interest rate floor, falling house prices, record-low credit growth and expectations that the Reserve Bank will lower interest rates again this year will make it possible for people to borrow significantly more. Speculators estimate that this amount could be in the vicinity of anywhere up to ten percent.

With so many factors to consider in determining someone’s borrowing capacity, the best way to find out what the change means in real dollar terms for you is to contact Dan for a quick chat.

All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product

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