Change of loan serviceability rules is great news for borrowers

By Janet Spencer

The recent announcement by Australian Prudential Regulation Authority (APRA) of the change of loan serviceability rules is great news for borrowers. Combined with the defeat of Labor’s negative gearing reforms and the Morrison government’s scheme to help first-time buyers, analysts have begun tipping an end to property price falls across Sydney and Melbourne.

Since 2014, lenders have been required by APRA to make sure potential borrowers can service their loan sizes at an interest rate of 7 per cent, with most lenders using 7.25%. The regulator now proposes borrowers be tested for their capacity to meet repayments at the prevailing mortgage rate of 3.75% as well as a buffer of 2.5%.  So the result of the change in the serviceability test of 1 percentage point reduces the rate from 7.25% to around 6.25 %.

There was lots of speculation this month that the Reserve Bank would cut interest rates by as much as 1%. Ahead of the federal election this did not occur.  However, if this takes place in June or July and if the banks pass on rate reductions, this will further lower the serviceability test and interest rates.

So, the combination of rate cuts and rule changes could provide a significant boost to maximum borrowing limits.

I spoke to a local mortgage broker who believes this can add as much as $100,000 to the purchase budget of a fairly average borrower on a salary of under $100,000.

This opens up more opportunities for all buyers.  Last year and up till recently it has been incredibly tough to buy.  So, for people planning to borrow, this is incredibly good news.  The difference in what you can buy from say a $500,000 budget to $600,000 could mean an extra bedroom or some outdoor space or a car park. It may mean buyers can consider a house instead of a unit.

First home buyers only ever get the stamp duty concession once. If you are buying with a budget of under $650,000 you can save as much as $31,070 in stamp duty. This could be two or three years savings for many couples of around $200 per week in consistent saving from after tax dollars.

If you want to buy a property, now is the time to take next steps and speak to your mortgage provider and Buyer Solutions.

Buyers Advocate, Buying property, First home buyers, Home buying, Housing Affordability, Housing Market, Real Estate News & Opinion

borrowing, borrowing money, Buyer Solutions, buyers agent, loan market, melbourne property