APRA Ease on Lending

APRA has begun moves to ease its restrictions on how lenders assess mortgage applications, with likely positive consequences for residential real estate. Under the current Australian Prudential Regulation Authority rules, lenders have to assess borrowers’ ability to service loans assuming an interest rate above 7%, even though most can borrow at below 4%.

Now APRA says it will remove its guidance instead, lenders will be permitted to set their own minimum interest rate floor for use in serviceability assessments. It has also proposed that serviceability assessments use an interest rate buffer of 2.5%.

Mortgage broker Louise Lucas says the changes will mean borrowers are assessed on interest rate levels closer to the ones they’re actually paying. RiskWise Property Research says APRA’s scrapping of the 7% “stress test” buffer will effectively see a 9% increase in borrowing capacity for owner-occupiers which will rise to between 13% and 14% if the RBA undertakes two interest rate cuts before the year is out.