It would be an understatement to say that home buyers and investors have struggled to secure finance for the past six months or so.
The reason being is that the findings from the Banking royal commission exposed that banks and other lending institutions have a very loose application of the guidelines for sound mortgage practices set out by the Australian Prudential Regulation Authority (APRA).
As the banks received a smack on the wrist and some hefty fines, including the CBA being fined $700m for breaching the law more than 53,000 times, it seems that the lending institutions have toed the line and self-assessed themselves based on APRA’s guidelines which has made borrowing, for most, very difficult.
So where to from here you may ask?
APRA is now proposing the following revisions to its lending guidelines:
- Remove the quantitative guidance on the level of the serviceability floor rate, i.e. the reference to a specific 7%. APRA will still expect ADIs ie. banks to determine, and keep under regular review, their own level of floor rate, but ADIs will be able to choose a prudent level based on their own portfolio mix, risk appetite and other circumstances;
- Increase the expected level of the serviceability buffer from at least 2% (most ADIs currently use 2.25%) to 2.5%, to maintain prudence in overall serviceability assessments; and
- Remove the expectation that a prudent ADI would use a buffer ‘comfortably above’ the proposed 2.5%, to improve clarity of the prudential guidance.
The reasons detailed for APRA about these proposed changes are:
- The low interest rate environment is now expected to persist for longer than originally envisaged. This may mean that the gap between actual rates paid and the floor rate may become unnecessarily wide; and
- Compared to 2014, when a single standard variable rate was used as the basis to price all mortgage loans, ADIs have introduced differential pricing for mortgage products. The merits of a single floor rate are therefore less obvious, particularly as it will be most binding on owner-occupiers with principal and interest loans, and least binding on investors with interest-only loans. (Source: Cameron Kusher, Core Logic 2019)
Basically, what this means is that APRA is proposing changes that will loosen the current guidelines and make it less onerous for borrowers to secure funds. This is welcome news for owner-occupier buyers and investors alike.
With the federal election now over and the ridiculous pending policy by Labour to abolish negative gearing now removed, it’s all systems go for the Australian property market. The lowering of interest rates this week will only add to the enthusiasm of buyers in the Moreton Bay region.
This region has always been a popular place to live because of its diversity of rural, city and waterfront living. Along with massive population growth, affordable housing, infrastructure projects and the certainty of a stable government that has a pro-property policy, our region will enjoy strong growth for many years to come.