Property prices in most major capital cities in Australia have been on a steady decline since 2017, and as many Australian expats would have faced, it has been difficult to borrow enough capital to enter the market. Australia’s banking regulator, the Australian Prudential Regulation Authority (APRA) has decided to scrap the minimum serviceability rate of 7.25% and allow lenders to use a 2.5% buffer to their own minimum interest rate when assessing new applications.
Given that many lenders are now offering interest rates between 3 – 3.5%, particularly for homeowners with some rates as low as 2.99%, APRA has recognised that the minimum serviceability rate of 7.25% is too much of a spread and is unnecessary in preventing defaults given current interest rates. Many borrowers will now be assessed for serviceability purposes at 6.25 – 6.5% given the current rate environment, which will have a positive impact on their borrowing capacity.
What does the change mean for borrowers?
Given the reduction in the serviceability rate, this will boost the borrowing capacity for both home-owners and property investors. On average, it is expected that this change will allow borrowers to access an additional 14% than is currently available to them, which may just be the figure required to get them into the property they desire.
Key research suggests that for Australian households with a combined income of approximately A$125,000 per year, the borrowing capacity would jump by A$90,000, and for those households on a combined income of A$200,000 per year, this would result in an increase of A$150,000.
Will the benefits be passed onto Australian expats?
Australian expats will also be key beneficiaries of the latest change, as they too will be able to be assessed at the reduced rate, thereby boosting their borrowing capacity. It remains important to compare lenders when assessing your lending options as an Australian expat, as credit policy still differs to a large extent between lenders and borrowing capacity can be significantly different between the various options, despite them assessing the same applicant.
What impact will it have on the Australian property market?
Given that lending and overall credit growth in Australia has been sitting at all-time lows following the significant tightening of the credit market in Australia over the past 2 – 3 years, and the Royal Commission keeping the spotlight on the industry, this change will see the lenders looking to boost lending, particularly for home loans. It is likely that this will have a positive impact on borrowing activity and property prices in key areas.
As always, it’s important to do your homework and seek professional advice when it comes to building your property portfolio and selecting the right lender/s to allow you to achieve your financial goals.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.