Access over 20 of Australias's Top Lenders easily (02) 8310 2199 Request a Call Back
No Fuss Home LoansBlogUncategorizedAPRA suggests banks relax key lending criteria

Housing affordability the best it’s been since 1999: HIA

Posted 2 weeks ago

Great news for home buyers – housing affordability is the best it’s been since 1999, according to new data released by the nation’s peak housing and building body.

Read more

What the cash rate cuts mean for other areas of your finance

Posted 3 weeks ago

Whenever the Reserve Bank of Australia (RBA) changes the official cash rate we all hear about how it will impact home loans. But it affects many other areas of finance and the economy, which we’ll look into today.

Read more

Granny flat could boost your property value by 30%

Posted 4 weeks ago

Backyard cricket pitch not getting much of a workout these days? Sick of your weekends being taken up with mowing and gardening? Installing a granny flat could be a lucrative solution – boosting the value of your home by 30% and adding around 27% to rental income.

Read more

APRA suggests banks relax key lending criteria

Posted 2 months ago

Here’s a bit of good news: you may be able to borrow more for your next home loan after the prudential regulator sent a letter to the banks asking them to relax a key lending criteria.

In a letter to lenders, the Australian Prudential Regulation Authority (APRA) has proposed removing its guidance that lenders should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7% (although most ADIs currently use 7.25%).

Instead, APRA has proposed that authorised deposit-taking institutions (ADIs) use an interest rate buffer of 2.5% over the loan’s actual interest rate when assessing a customer’s ability to manage repayments.

How you’ll be assessed

CoreLogic research analyst Cameron Kusher has done a pretty good job of breaking down how you’ll be assessed under these proposed changes:

“If someone is looking to borrow at an interest rate 3.9%, the borrower would previously have been assessed on their ability to repay the mortgage at an interest rate of 7.25%,” he said.

“Now they would be assessed on their ability to repay at a lower 6.4% (3.9% + 2.5% buffer).”

Kusher added that the proposed APRA changes seem sensible given the interest rate environment with the expectation that rates will fall from here and remain lower for longer.

“Furthermore, since 2014 it has become much more difficult to get a mortgage, that is partly because of this serviceability assessment,” he said.

Why the change?

APRA chair Wayne Byres said the operating environment for ADIs had evolved since 2014, prompting APRA to review the ongoing appropriateness of the current guidance.

“APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk,” said Mr Byres.

“Although many of those risk factors remain – high house prices, low interest rates, high household debt, and subdued income growth – two more recent developments have led us to review the appropriateness of the interest rate floor.”

Mr Byres said with interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7% floor and actual rates paid had become quite wide in some cases, and “possibly unnecessarily so”.

What does this mean for borrowers?

Mr Byres said the changes are likely to increase the maximum borrowing capacity for a given borrower.

However, he warned banks that the changes are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards.

“The proposed changes will provide ADIs with greater flexibility to set their own serviceability floors, while still maintaining a measure of prudence through the application of an appropriate buffer to reflect the inherent uncertainty in credit assessments,” Mr Byres said.

What next?

A four-week consultation will close on 18 June, ahead of APRA releasing a final version of the updated guidance.

CoreLogic’s Kusher said the changes will allow some borrowers who can’t quite access a mortgage currently to get one.

“Overall for the housing market, it will mean more people are able to get a mortgage. These proposed changes in conjunction with the uncertainty of the election now behind will potentially provide additional positives for the housing market,” Kusher said.

In the meantime, if you’d like to find out if these changes might help increase your borrowing capacity, then get in touch. We’d be more than happy to run through your situation with you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Arrange a chat

No Fuss Home Loans can help you to navigate the home loans options available to you. Save your time and money.

Our Service is Free

Loan Providers

I have known Kathy since she was highly recommended to me six years ago. As soon as I met her I knew Kathy was a professional of exceptional integrity. Someone I could rely on and trust absolutely. Her warm and relaxed manner immediately gave me confidence that I was in good hands. Since then Kathy has become a valued adviser. She has negotiated several home loans for me. Always smoothly, without delay and for me, totally stress free. I look forward to my continued association with Kathy knowing that I can always rely on her advice and that it will be in my best interests. I would recommend her without exception to anyone who wants a professional of this quality.

Jenny Atkins

We only have very positive things to say about your service – it was wonderful and was such a help to me as a first home owner and helping us make the right decision for us regarding our home loan.

Natalie – Lewis