AUGUST 2019 UPDATE:
The majority of major banks, including Westpac, CBA and ANZ have now reduced the serviceability criteria for getting your first home loan. This means that the banks will now assess how much you can borrow based off approximately a 5.5% or higher interest rate, instead of a 7.5%or higher interest rate. For most people, provided you have a sufficient deposit, you may be able to borrow $50k – $100k more.
Get in touch today to see what options may be available to you.
PREVIOUS ARTICLE – MAY 2019:
Government regulator APRA has yesterday announced that they will no longer require banks to assess buyers lending capacity based on a hypothetical interest rate of 7%.
The Short and Very Sweet Summary
As of July, if you speak to your broker, or head into your local bank, there is a good chance your borrowing capacity (how much of a loan they think you can handle), will have increased from your last visit. If your broker advised you could borrow up to $450,000, that might shift up to $500,000, provided you have a sufficient deposit.
With property prices at or nearing a low point, interest rates at an all time low, and the introduction of these changes to lending, it makes for an excellent time to start looking at your property options.
Who Is APRA?
APRA oversees and regulates all banks in Australia. It is short for the Australian Prudential Regulation Authority.
What is the current situation?
Bank’s have been required to assess your ability to service a loan based on if the interest rate increased to 7%, or 2.25% above there standard rate, whichever was higher.
Interest rates are at an all-time low, and likely to decrease further with the next Reserve Bank announcement. The 7% figure has become too much of a buffer, restricting people’s ability to get into the market, particularly with Sydney / Melbourne prices.
What is changing?
APRA have indicated they will abandon their rate floor of 7%, and potentially increase the buffer from 2.25% to 2.5%. So at the current 4% lending rates, the serviceability assessment will be based off 6.5%, not 7.25%.
What this means in reality is that borrowers may see their capacity increase from 500,000 to 550,000, or more.
Will it happen and when does is start?
APRA have a one month consultation period, with the changes coming into play in June 2019. It is likely the banks will wholeheartedly agree, given they can write more loans, and larger loans.
What does it mean for me now?
A few things.
If you are in the market for a property but haven’t been in a position to get the type of property your after, this could be a game changer.
This is particularly big for us here at Hello Home, as we assist people with their deposit funds, but it is quite often the serviceability which restricts them. We are excited now to help more and more people get into the market.
Can you help advise on my borrowing capacity?
We have a specialist finance partner who is an absolute guru in determining exactly how much you can borrow and which bank will be able to get you the best deal. Get in touch with us today to learn more.