Australian Prudential Regulation Authority (APRA) announced on 6 October that it is introducing tighter mortgage serviceability tests, making it more difficult for some borrowers to get a home loan.
The minimum interest rate buffer on home loan applications has been increased from 2.5 to 3 percentage points. Therefore, from November, new borrowers will be tested by banks to determine their ability to make mortgage repayments should home loan interest rates being to rise.
This is to ensure a borrower’s ability to make their mortgage repayments. In the last year, the property market has soared by over 20% and is continuing to rise. In the June quarter of this year, some new borrowers’ debt to income ratio was greater than six times their gross income. This is a high risk scenario and one APRA would not be comfortable with.
The new serviceability buffer being introduced will apply to all new borrowers and will largely affect investors rather than owner occupiers.
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