Banking Watchdog Tightens Mortgage Rules

November 09 2021

"Affordability is important for both Australians wanting to buy a home and for those renting. Many factors influence the supply, demand and cost can impact you as mortgage rules continue to tighten." - Miguel Nitorreda, Data Analyst 

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Australia's banking watchdog has tightened the rules on home loan lending to stop banks from offering mortgages to property buyers who may be unable to afford them if interest rates rise.

From today, the Australian Prudential Regulation Authority (APRA) has increased the minimum interest rate buffer it expects banks to use when assessing a person's "serviceability" from 2.5 per cent to 3.0 per cent above the loan product rate.

In simple terms, this means banks and lenders must not provide a home loan to a person until they are satisfied they would still be able to afford the repayments on a rate that is 3.0 per cent higher than the current product's rate.

APRA Chair Wayne Byres said the move to tighten lending will prevent banks from lending to borrowers who are taking on too much risk, particularly as the housing market takes off on the back of historically low-interest rates.

"In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future," Mr Byres said.

"While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building."

Mr Byres said regulating the minimum buffer rate comes as new home loans that far exceed a borrower's income explode in popularity.

"More than one in five new loans approved in the June quarter were at more than six times the borrowers' income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead," Mr Byres said.

"With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted."

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Source: 9 News 

Banking watchdog tightens mortgage rules as affordability crisis looms. (2021, October 6). 9News - Latest news and headlines from Australia and the world.