The serviceability buffer requires banks to assess whether a borrower could still afford their mortgage if interest rates rise significantly.

If the Coalition forms government, it will fight to reduce the "overly cautious" buffer to its pre-pandemic level of 2.5%, shadow housing minister Michael Sukkar announced on Monday.

"We will make it clear that [the Australian Prudential Regulation Authority (APRA)] must consider the impact of its rules on access to housing – particularly for first-home buyers," he said.

"This one-size-fits-all rule is stopping tens of thousands of Australians from getting a home loan – even when they can meet the repayments with a prudent margin against unexpected future rates rises."

Currently, a borrower applying for a mortgage with a 6% p.a. interest rate must be able to prove they could meet their repayments if their rate was to rise to 9% p.a.

By lowering the buffer by 50 basis points, such a borrower on a $100,000 annual income with $2,000 per month of living expenses could see their borrowing power increase by around $30,000.

See also: Borrowing power calculator

The policy follows a November 2024 Senate inquiry into financial regulation and homeownership, which recommended APRA reduce the buffer – at least for first home buyers.

That same month, APRA chose to hold the serviceability buffer at its current level, citing concerns over a potentially weakening jobs market, global instability, and high household debt levels.

"We will continue to closely monitor the external operating environment and will consider modifying these settings should that become appropriate," APRA chair John Lonsdale said.

The Greens strongly opposed suggestions to reduce the buffer late last year, with senator Barbara Pocock saying, "it will land a lot more first home buyers in hot water when unexpected circumstances arise".

"This measure, proposed by Peter Dutton's Liberals, will worsen housing affordability in Australia," Ms Pocock continued.

"Economics 101 tells us this will push house prices up."

The election commitment has been welcomed by the Housing Industry Association (HIA).

HIA managing director Jocelyn Martin labelled the current buffer "unnecessarily restrictive" and access to finance "one of the most significant barriers" to homeownership.

Easing access to home finance is also at the centre of the Albanese Government's housing platform, with its Help to Buy scheme expected to help 40,000 homebuyers into the market. 

The bolstered shared equity scheme will allow homebuyers to purchase property with a smaller deposit and by taking out more manageable home loans.

In addition to pushing APRA to change the serviceability buffer, the Coalition is also promising changes to the treatment of loans protected by lenders mortgage insurance (LMI) – another recommendation of the senate inquiry.

LMI is typically required when a borrower has a deposit of less than 20%, protecting the lender if the borrower defaults.

"Right now, Australians without access to the 'Bank of Mum and Dad' are punished by higher borrowing costs – even when the actual risk is the same or lower," Mr Sukkar said.

"That's a systemic bias in favour of inherited wealth."

Image by Tom Rumble on Unsplash