Should buyers be worried about APRA’s new servicing rules?

The Australian Prudential Regulation Authority (APRA)'s decision to raise the servicing rates would likely have "little impact" on owner-occupiers.

Your Mortgage home loan specialist Raj Ladher said the move to increase the interest rate buffer is a "small step" in the right direction.

"In my opinion, the increase in the buffer will have little impact to owner-occupiers due to the floor rate being currently around 5%," he told Your Mortgage.

With APRA's decision, banks will now need to apply a minimum interest rate buffer that is at least 3 percentage points (pps) above the loan product rate.

Mr Ladher explained that owner-occupier rates are currently at their lowest and most lenders will likely stick to the floor rate when assessing borrowers.

"For example, if a client can get an interest rate of 1.89% and you add a buffer of 3pps, the assessment rate would be 4.89% in which case the floor rate would of 5% will still be used," he said.

"This change will impact investors more due to investor rates being higher. I believe this is what the regulators are trying to curb to begin with."

Mr Ladher said the new rule also aims to manage borrowers who are over-extending themselves.

"As always, its best to speak with a mortgage professional who has access to a number of lenders in order to understand your borrowing capacity."

Tenants likely to bear the brunt

Real Estate Buyers Agents Association of Australia (REBAA) president Cate Bakos said the amount that home buyers who are applying at their maximum capacity would be able to borrow will be reduced with this new change.

"For some borrowers who have multiple loans, they might find that the bank is assessing all of their borrowing capacity against all of their loans,” Ms Bakos said.

If buffers were to be increased across other loans that these borrowers hold, Ms Bakos said they may well be more impacted than someone who is borrowing for one property.

"Investors could be the group that are hit a little bit harder with borrowing capacity restrictions.”

Ms Bakos said tenants would likely suffer the most given the enormously high rental growth and shrinking supply across the nation.

"If investors are slowed down, similar to what happened in 2017 to 2019, it would be really tough for tenants. We actually need mum-and-dad investors to shoulder the responsibility of providing housing," she said.

Incoming buyer rush

Wealthi director and co-founder Domenic Nesci said the new serviceability rules will not necessarily push house prices down.

"Things may slow down a bit as we see the regulators trying to use different soft techniques to cool down the market," he told Your Mortgage.

However, buyers and investors are likely to shift their focus to high-density areas that are more affordable.

"Rather than suppress the mass market demand, I can see that the demand will shift into more affordability. And this means buyers will prefer to buy units or townhouses," he said.

Given these conditions, Nesci said it could potentially trigger a rush among these buyers in the lead up to Christmas to avoid further regulations.

"There’s no need to rush. Buyers and investors still need to be prudent and selective when it comes to buying a property," he said.

"While the banking system may tighten borrowing later on, you still want to invest in quality property."

Photo by Headway on Unsplash