Australian Prudential Regulation Authority (APRA) has announced changes to mortgage lending rules for banks. APRA has told lenders that by November, it expects they will assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate. This compares to 2.5 percentage points that has been commonly used by Authorised deposit-taking institutions (ADI) today. Our Director of Sales, Cullen Haynes, has summarised the changes in the video below.
APRA’s decision comes from growing scrutiny of “financial stability risks” from banks’ residential mortgage lending. There are concerns that with credit growth outpacing growth in household income, there will be an increase in medium-term risks for the economy.
Figures from the June quarter show that more than 20 percent of lending was to borrowers that had borrowed more than six times their pre-tax income. The main cause being record-low interest rates and rapidly increasing house prices which have put a large amount of pressure on mortgage debt. APRA claims without action, the issue will only rise.
Wayne Byres, chairman at APRA says “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…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.”
What does this mean for legal professionals? In essence, across the board, most lending is going to decrease your borrowing power by about 5%. However, rest assured, with a legal practising certificate, you could still be eligible to buy a home with a 10% deposit and have your Lenders Mortgage Insurance waived.
Curious to find out you’re borrowing power? Chat to our team today to find out what the new changes could mean for you.