How APRA has given the property market a boost

For those that missed it, the Australian Prudential Regulatory Authority, (APRA), announced that it would scrap a rule that it introduced in 2014, which required that new mortgage applicants had their ability to manage repayments assessed as if they were paying interest rates at 7.25 per cent. APRA actually floated the idea of removing this requirement in May, and has been seeking feedback since then, so it was good news to see the change being confirmed on Friday.

The changes mean that from now on, instead of using the 7.25 ‘‘floor’’, banks will be required to test if home loan applicants could manage repayments as if they were paying interest rates 2.5 percentage points above the current rate.

With many home loans currently using interest rates of about 3.5 per cent, the new rules are likely to mean that banks will be testing whether borrowers can afford their loan at a rate of about 6 per cent, rather than 7.25 per cent. The word from several sources in the mortgage lending industry is that a homeowner’s borrowing capacity could increase by about 10 per cent or more.

For example, one of the online mortgage comparison sites has estimated that if a bank uses an assessment rate of 6 per cent instead of APRA’s previous 7.25 per cent, a family with an average household income would see their borrowing capacity increased by $77,000. A single borrower earning the average full-time wage of $83,455 could see their borrowing capacity rise by $66,0000.

In many cases, this could be the difference between securing your dream home or missing out.

Make no mistake, with this news and the cuts to interest rates now likely to impact the market over the next month or two, this will be an excellent time to have your property on the market. So if you would like to discuss your options, feel free to give the Barry Plant Inner-North team a call.