On Tuesday APRA (Banking Regulator) proposed to unwind a key constraint that was put on lenders during the property boom.
APRA proposed scrapping a rule that has meant all home loan borrowers are assessed on their ability to manage repayments with 7.25 per cent interest rates.
This means Borrowers will be able to borrow tens of thousands of dollars more.
The interest rate “floor” was introduced in late 2014 in an attempt to contain soaring house prices and surging housing investor loan growth. It has required banks to test prospective borrowers against the higher of either an interest rate of 7 per cent, or a 2 per cent “buffer” over the loan’s actual interest rate.
In practice, this has meant most banks test whether customers can manage repayments if interest rates hit 7.25 per cent – which is much higher than the actual rates of less than 4 per cent being offered on many mortgages today.
For a couple with two children with a household income of $150,000 a year, the change could increase the maximum amount a bank would lend them by $67,000 to $903,000. That is based on a bank using an assessment rate of 6.5 per cent, instead of 7.25 per cent currently.
Bank sources said the change would affect owner-occupier customers most, because banks charge these customers lower rates than property investors, and lenders would still need to add 2.5 per cent to their advertised rates when conducting their loan assessments.