What Does “Changing to Mortgage Lending Rules” Announced by APRA in October Mean to You?
On the 6th of October 2021, the Australian Prudential Regulation Authority (APRA) announced that lenders will need to assess new borrowing ability for the borrowers to be able to make their home loan repayments at an interest rate that is at least 3.0 percentage points over the actual product interest rate.
Many lenders have updated their borrowing power calculator on 1st of November 2021 to reflect this change. However, what is the main reason for APRA doing this and how this may impact to your as a borrower?
First all, you must understand this type of control is called “macroprudential policy”. There are different types of macroprudential policies that are set up and aimed at containing financial risks that could have a broader impact on the financial sector and economy.
In December 2014, APRA imposed a 10% speed limit on investor credit growth, and limited interest only lending to 30% of new housing loan originations back to March 2017. All of these are macroprudential policies that ARRA uses to manage financial risks in Australia.
This time, by introducing a higher serviceability buffer from APRA, it reduces a borrower’s maximum borrowing loan size. More importantly, it has a larger impact to those who have existing debts than those who are going to apply their single loan facility because this additional buffer will apply to all the pre-existing debts during the borrowing power check. In other words, a borrower can get less loan amount today by comparing to trying to get a loan last month.
Despite of the previous announcement from the Reserve Bank of Australia (RBA) that they do not have plan to increase current cash rate until 2023, according to most recent quarter, the pressure from the increase in the inflation rate, new dwellings price, automotive fuel, along with other factors, is raising. Many banks have lifted interest rate for their 2 – 5 years fixed rate home loan products recently.
Source From: CoreLogic 2021