Lending restrictions have been introduced to slow the growing property market and force banks to act more conservatively when assessing the serviceability of borrowers.
Will this impact home buyers, investors or everyone?
The Australian Prudential Regulation Authority (APRA) has bumped up the serviceability buffer in response to concerns around overall household debts and the rapid increase in property prices across Australia.
In a letter to ADIs on Wednesday, APRA said it would require banks to test whether new borrowers could afford the repayments on their loan if the interest rate went up by 3%. This marks a 50 basis point increase from the previous assessment rate of 2.5%.
APRA chairman Wayne Byres said this move was in response to household debt growing at a faster rate to income, as well the recent increase of borrowers with a debt-to-income ratio of six or more.
"While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building,” APRA Chair Wayne Byres said.
“More than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead. With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted.”
“In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future,” he said.
This may benefit both home buyers and investors.
For home buyers, it could slow down the rapid increase in property prices to make it more affordable to enter the market - especially for first-home buyers who seem to be struggling at the moment in these hot markets.
For investors, it's all about the numbers. With the increase in property prices lately, this has reduced the gross rental yield in most regions and investors are finding themselves having to put in a lot more money from their own pocket each month to cover the loan repayments and other outgoings.
I hope all of this info has been helpful and wish you all the best on your property journey. Please don't hesitate to get in touch if you have any questions.
Disclosure: The information contained in this blog is my personal opinion only and is not to be taken as financial advice. Please speak with your accountant or any other licensed professional for specific advice based on your own personal circumstances.
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