Following on from our last blog (Debt to Income Ratio policy), APRA has released new guidelines around ‘’serviceability buffers’’ for borrowers which is expected to wipe 5% - 10% off your maximum borrowing capacity.
When applying for a loan, even though the interest rate you apply for is say 2.5%, the banks would assess your situation on a much higher interest rate.
This ‘’buffer’’ was 2.5%, and now its 3%.
This new policy coupled with the new Debt to Income assessment (home buyers can’t borrow more than 6x their income) will be a welcomed reprieve for the real estate market and people wanting to get into an overheated market.
It seems these new policies are only the start of measures which will be rolled out in 2022.
APRA is mindful of not causing the market to retract quickly (like it did at the end of 2017) which caused the market to decline by 14.9% in Sydney and 13.1% in Melbourne. They are trying to aim for a more gradual pull back on the property growth trend. Not so much bring it down.
With auction clearance rates at their peak, some regional areas having insane growth of up to 30% in 12 months, and the limited real estate stock, something needs to happen.
In a letter to lenders, APRA Chairperson Wayne Byres advised it ‘’would consider the need for further macro-prudential measures’’ so rest assured the measures in place to date won’t be the last. Future changes could include measures such as limits on the amount you can borrow based on a property value (LVR), increased buffers for investors and caps on interest only loan offers (to name a few).
All the measures seem sensible and as long as they don’t enforce too many measures, it will be a win for buyers.