APRA finally makes changes to lending.

Today, the Australian Prudential Regulation Authority (APRA) has confirmed that it will proceed to adjust the mortgage serviceability assessments and remove its 7 per cent interest requirement.

Financial institutions will instead be required to set the standard affordability measure at 2.5% above the loans variable interest rate. With many loans now offering rates around 3.5% interest this could potentially mean a possible 10% increase in the borrowing capacity of borrowers.

APRA’s new guidance is effective immediately.  

The overwhelming majority of banks and lenders supported the easing of the guidelines as the 7% requirement had sufficiently done the intended job of removing the heat from the property market and ensuring greater sustainability in domestic housing prices. It was deemed that now was the appropriate time to allow greater flexibility in the lending process and provide a much-needed stimulus to lending and consequently domestic economic activity.

APRA chair Wayne Byres said APRA believes its amendments are “appropriately calibrated”.

“In the prevailing environment, a serviceability floor of more than 7 per cent is higher than necessary for ADIs to maintain sound lending standards. Additionally, the widespread use of differential pricing for different types of loans has challenged the merit of a uniform interest rate floor across all mortgage products,” Mr Byres said.

“However, with many risk factors remaining in place, such as high household debt and subdued income growth, it is important that ADIs actively consider their portfolio mix and risk appetite in setting their own serviceability floors. Furthermore, they should regularly review these to ensure their approach to loan serviceability remains appropriate.”

This is great news for real estate markets around the country and after the significant recent slide in prices, it is a timely and prudent fiscal move to ensure that the markets continue to stabilise.

We welcome this news and look forward to a busy spring selling season.