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APRA to Relax Assessment Rate for Home Loans

Described by industry figures as the biggest development for the property market in at least four years, Australia’s banking regulator has announced plans to relax the assessment rate for home loans.

Currently, lenders have to assess whether a borrower can afford their repayments using a minimum interest rate of at least 7 per cent. This was a rule introduced by the Australian Prudential Regulation Authority (APRA) in December 2014 as part of its efforts to reinforce sound residential lending standards. But with prospective buyers facing difficulty in gaining adequate finance, it became a cause for the market slowdown.

Under the new proposal, Australians will be able to borrow more money, which is set to restore confidence in 100% of the buying population.

APRA chair Wayne Byres said with interest rates at record lows, the gap between the 7 per cent floor and the actual rate of interest paid had become unnecessarily wide.

“The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards,” he said.

The announcement forms one part of a series of events over the past few weeks that will work together to shift momentum in the property market.

Scott Morrison’s federal election victory, coupled with the government’s move to support first home buyers, would work with APRA’s announcement to bottom Australia’s falling property markets much sooner than experts anticipated, and make a significant impact for both the property market and the economy.

Read the full article by Domain.com.au May 21, 2019