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Bank Regulator Releases Handbrake on Residential Lending

Updated: Apr 16, 2020

Home Buyers & Property Investors can now borrow more in line with their actual affordability.


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FANTASTIC NEWS for all Prospective Home Buyers & Property Investors alike. After 4 and half years of regulatory meddling in the property market (mainly trying to slow down the property market in Sydney & Melbourne), APRA has announced the removal of the 7% floor rate for serviceability assessments, effective immediately.


What does this mean for you?


In short, you are now able to borrow more in line with your actual affordability, as banks can now calculate your loan repayments based on your actual interest rate plus a buffer of ≥2.5% when assessing your ability to repay the new loan (to ensure you can still meet repayments if interest rates rise over the life of the loan).


Previously, APRA stipulated the banks had to calculate affordability based on the higher of either a minimum interest rate of at least 7%, or a buffer of at least 2% over a loan's actual interest rate. This meant that lenders have commonly been using a rate of between 7.25-7.5% in serviceability assessments. Given that Interest rates are now down in the low 3’s with some lenders, this meant that people were being assessed on whether they could afford a new loan based on paying more than double the actual interest rate (on both their new loan + all existing loans). Consequently, many prospective borrowers were knocked back by the banks for loans they could easily afford in reality.


A particular Investor client comes to mind – under the previous guidelines, even though they had $100,000 per annum residual income after all expenses, they couldn’t pass serviceability tests with any of the banks for their fifth investment property purchase. Fortunately, we have access to other non-bank lenders who can often get the deal done.


The heightened Responsible Lending Practices which have been introduced throughout this period will remain, however the removal of the serviceability floor rate will enable more people to enter the property market, which is great for the economy.


In summary, these changes mean that less people will be knocked back for finance they CAN really afford. In addition, with interest rates at an all-time low and the property market believed (by many property experts) to be bottoming out, there has never been a better time to buy!


Get in touch to find out your options including how much you can borrow and what price range you should be looking at. 0490 809 734 | service@acedfinance.com


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