It’s Spring, NSW is easing restrictions and people are out and about, looking at homes.
This is the perfect combination for the heated real estate market right now. However, this temperature has gone right off the charts, especially around Sydney, and so APRA has made some recent changes around mortgage lending.
Let’s get you up to speed with what you need to know.
Who is APRA?
The Australian Prudential Regulation Authority (APRA) is committed to keeping our financial system safe and stable for all, especially as record-low interest rates are amplifying both the demand for property and the risks involved in home lending.
They’re concerned that people may borrow more than they can service in the longer run, should interest rates go up again.
In line with their commitment to ease the pressure on household debt, APRA has recently moved to increase the loan serviceability expectations of banks and other lenders. This increase will essentially work to lower the cap on the amount that banks can lend to borrowers to counter the rising risks in home loan lending.
Here’s a breakdown of these changes and the potential impact they will have on you.
APRA has implemented an increased interest rate buffer for assessing borrowers’ capabilities
The recent property boom has seen housing prices rise significantly, leading to more buyers seeking high-risk mortgage lending.
In fact, according to APRA Chair, Wayne Byrnes, more than one in five new loans approved in the June 2021 quarter were six times greater than the borrowers’ income – a high number by both historical and international standards.
With the concern that household credit growth will soon move ahead of household income growth, APRA has taken a proactive approach to monitoring this risk.
In a letter sent to all Authorised Deposit-Taking Institutions (ADIs), APRA advised them to evaluate the ability of all new borrowers to meet loan repayments at an interest rate of at least 3% above the loan product rate, as compared to the 2.5% buffer that they commonly use today.
This request will be monitored by APRA from the 1st of November 2021 and is expected to reduce the maximum borrowing capacity of prospective homebuyers by around 5%.
How does this APRA change impact you?
The new interest rate buffer applies to all new home loan borrowers.
Through the tightening of the serviceability test, APRA aims to stabilise borrowing and lending for the benefit of both property buyers and sellers.
So, whether you’re looking to purchase a property or sell your existing one, here’s how the new APRA changes may (or may not) impact you.
What this means for buyers:
- The interest rate serviceability buffer simply works as a cap on your borrowing leverage, meaning it will not have any impact on actual mortgage interest rates.
- The change will likely have a greater impact on investors, rather than typical owner-occupiers and first home buyers who are already limited in their borrowing power by the size of their deposit.
What this means for sellers:
- The Commonwealth Bank reported that only 8% of its home loan customers are currently borrowing at their maximum capacity, meaning property vendors can still expect high amounts of demand from a wide range of borrowers who will remain unaffected by these changes.
- As these changes were only implemented to combat large levels of household debt, there is still high buyer demand and low stock available on the property market, meaning now is the best time to list your property for sale.
What should you do next?
By implementing stricter lending criteria, APRA’s aim is to ensure that mortgage lending is effectively conducted with the stability of the financial system and the good of everyone involved, in mind.
The increased interest rate buffer guides banks and lenders in ensuring that borrowers are prepared and capable of meeting their home loan repayments under difficult circumstances, such as if rates were to rise to almost double the current levels.
For vendors, these changes bring some stability and certainty back into the market, meaning that this is a great time to list your property with Upstate and find a buyer today!
If you want to learn more or speak to our financial specialists about how you may be affected, contact your Upstate financial team today to discuss what this means for you.
Find yourself in a better place, sooner
We’re here to help you with all things real estate across the Northern Beaches.
Your Upstate property specialists can make selling your home easy, manageable and transparent. That’s because we’re a big agency, with the heart and passion of a boutique one. Speak to your local Upstate team today and we’ll show you the possibilities available to you.
We look forward to chatting with you soon.
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