Buying a home could become easier with lending conditions set to change

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HOME buyers struggling to meet strict lending criteria, may be thrown a lifeline with the Australian Prudential Regulation Authority (APRA) considering reducing the 7 per cent floor on loan serviceability calculations.

Instead banks will be allowed to assess loans at 2.5 per cent above current rates.

APRA requires lenders to assess whether or not a consumer can afford a loan at a rate higher than the current lending rates, to ensure consumers can still afford the loan repayments, should interest rates rise.

Reiwa has welcomed the proposed changes.

President Damian Collins said if they were implemented it would be a huge win for WA’s struggling property market, one that would enable more home buyers to enter the market, and those who were in the market would be able to afford a better property.

“Our local property market has been struggling for quite some time,” he said.

“When APRA introduced tighter lending restrictions across the country during the rise of the Sydney and Melbourne property markets, this had huge implications for local property, with fewer buyers able to enter our already subdued market.

“If these changes go ahead, this will make home loans more accessible for more people in a realistic way.”

Mr Collins said a 7 per cent buffer was acceptable when mortgage rates were at a similar level, but now interest rates were much lower, and expected to drop further with two rate cuts expected by the end of the year, the serviceability calculations should reflect this.

“If APRA introduces these changes and the banks pass the expected rate cuts on to borrowers, the assessment rate will drop from approximately 7.25 per cent to around 6 per cent,” he said.

“This will open the door to many more buyers, who will now be able to take out a loan had it not been for the high serviceability calculations.”

The proposed changes have been welcomed by other members of the industry.

Urban Development Institute of Australia WA chief executive Tanya Steinbeck said the 7 per cent servicing benchmark had been in place since 2014 and was no longer appropriate.

“The current rules are severely impacting on people’s ability to get a loan despite the improving housing affordability,” she said.

“This has meant, for WA in particular, the market is struggling to recover and jobs are being lost.

“The need to reduce the benchmark has been recognised not only by those of us in the industry, the State Government also pinpointed the issue when they released the recent budget and the Treasurer wrote to APRA asking them to reconsider the benchmark.”

Ms Steinbeck said while there still needed to be rules and credit checks in place to ensure people could realistically service their loan over time, they needed to be supported and if they had saved their deposit and had the financial stability, they should be able to secure a reasonable home loan.

“This is particularly important as our rental market is tightening considerably, with vacancy rates down to just 2.5 per cent,” she said.

“This is because more people are stuck in the rental cycle, unable to access a loan and step into home ownership.”

APRA will undertake a four-week consultation period, closing on June 18, 2019, before releasing updated guidelines for deposit-taking institutions.

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