Earlier this month APRA* asked that lenders increase their serviceability buffer from a minimum 2.5 per cent to at least 3.0 per cent from 1st November, mainly because it was worried about the level of debt that borrowers were carrying relative to their income.
How might it affect different buyer groups?
First home buyers might find their deposit gets them less than it did before and might have a harder time borrowing as much or satisfying the bank’s criteria.
Some commentators suggest that investors may not be as affected as owner occupiers because investors have access to equity, rental income and salaries as income stream to help their serviceability.
Some facts: The buffer increase affects new loans. Investor loans normally have higher interest rates than owner-occupier homes. What investors already have shouldn’t be affected because it is not about interest rates going up.
However, refinancing generally does involves new loans so investors may feel effects from raised serviceability buffers. Investors with significant property portfolios and debt portfolios might find their ability to refinance reduced.
Matthew Andrews, General Manager of RE/MAX Australia’s finance arm, Pivotal Financial, says that some lenders appear to be turning on the tap for investors.
“This is encouraging,” he says. “We are seeing refinance rebate campaigns, sharper fixed rates and variable rates for investor loans as the banks turn their focus to where they see the action is – clearly, in the investors.
Investors with good serviceability are less likely to be negatively affected as will any buyer making decisions well within their financial means.
Interestingly, even though property prices have increased by around 20 per cent this year, in the property cycle in place since a 2017 peak, average capital growth hasn’t been exceptional.
As lockdown restrictions ease from this month, we may see housing market activity ramp back up again. We think strength in the market will continue and have every confidence that property will remain a very good investment decision. We’ve even heard it said that there may be investors who will earn more from property capital growth than they will from their day job.
*The Australian Prudential Regulation Authority (APRA) is an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia.