APRA Set To Relax Assessment Rate For Home Loans

Close up hand of man signing signature loan document to home ownership. Mortgage and real estate property investment

Industry Experts Predicting A Positive Impact And Restoring Of Confidence
With Property Market And Economy At Large


It’s good news for Home Buyers this week, with Australia’s banking regulator, the Australian Prudential Regulation Authority (APRA), announcing its plans to relax the assessment rate for home loans.

This effectively means that homeowners could now be eligible to borrow more money, which leading industry types are describing as the biggest development for the property market “in at least four years”.

Currently, lenders have to assess whether a borrower can afford their repayments using a minimum interest rate of at least 7 per cent. This was a rule introduced by APRA in December 2014 as part of its efforts to reinforce sound residential lending standards.The new proposal, however, would allow lenders to review and set their own minimum interest rate floor for use in serviceability assessments.

APRA have indicated that the reason why they are relaxing this rule is because with interest rates at record lows, the gap between the 7 per cent floor and the actual rate of interest paid, had become unnecessarily wide.

These changes are likely to increase the maximum borrowing capacity for a prospective home owner.

Shane Oliver, Chief Economist, AMP said to Domain in a recent story that he believed that in light of this proposal, that falling property markets in Sydney would bottom out far sooner than anticipated and he expected this announcement to really shift the momentum.

In addition, Mr Oliver commented that this announcement is another positive part of the package of events over the past few weeks which saw the government decide to support first home buyers with a deposit scheme, and the outcome of the federal election, which has now relieved fear about potential changes to negative gearing and capital gains tax which may have previously caused buyers to hold back.

With the looming possibility of another interest rate cut in June, Mr Oliver believes that we are a hop, skip and a jump away from the bottom of the market and it will occur far earlier than assumed.

Simon Pressley, Managing Director, Propertyology furthered Mr Oliver’s sentiments by commenting the announcement as the biggest news “in at least four years”, saying it would have significant positive impacts for both the property market and the economy.

“This increasingly tight credit supply has been a massive fire blanket over every Australian real estate market. It affected every segment of the buyer population, and it benefitted nobody.

He likened it to the world’s best farmer having an enormous paddock with the best soil and an abundance of people who are keen to buy his produce. He just needs rain, and then everyone will benefit.

When credit is hard to come by, things stop. The economic flow-on effects from lost revenue have a massive effect for the entire economy.

Propertyology estimated that in the 2018 calendar year, this rule took 7 per cent off the annual rate of growth of any location in Australia. They believe that the lifting of this rule, will restore confidence across 100 per cent of the buying population.

Domain economist Trent Wiltshire also agreed, saying the proposal would have a “definite impact” on property markets across the country and will see the market turn around faster than anticipated, especially if there is an interest rate cut in June.

These results are particularly positive for first and second home buyers who now have more of a chance to get into the market and borrow more.