Home loan bombshell for househunters

Extract from Realestate.com.au

The regulator overseeing banks and lenders has delivered bombshell news for home loans ahead of Christmas.

After months of coming under fire for the high serviceability settings on home loan assessments – basically mandating lenders to judge all mortgage applications at interest rates that are 3 percentage points higher than current levels – the Australian Prudential Regulation Authority delivered its verdict.

APRA is refusing to budge from its 3 percentage points serviceability buffer put in place during the pandemic when interest rates plunged to record lows.

The serviceability buffer was 2 points a decade ago in 2014, then increased to 2.5 points just before the pandemic when there were rumblings of financial trouble emerging, and then increased further to 3 points in 2021.

The devastating decision means borrowers and those trying to refinance will be assessed in home loan applications at interest rates that sit around 9 to 10 per cent in the current market.

Despite Australia emerging strongly from the pandemic, APRA chair John Lonsdale warned that in the past year the risk of financial shocks has persisted and economic uncertainty is shifting.

“Since APRA’s last announcement regarding its macroprudential policy settings in July, inflation has continued to moderate and the risk of higher interest rates has receded somewhat, but we are mindful of potential shocks to household incomes from a slowing labour market,” he said. “That risk is exacerbated by uncertainty in the global economic environment including geopolitical instability.”

“Balanced against these risks, APRA noted that bank lending standards remain sound and non-performing loans remain low. As a result of these considerations, APRA has today confirmed that the mortgage serviceability buffer will remain at 3 percentage points.”