In 2014, APRA introduced a standard interest rate across all lenders of 7 per cent, or a 2 per cent buffer on top of the interest rate on offer from a lender. This standard rate was introduced as a serviceability assessment for the borrower and to ultimately contain soaring house prices. It meant that the lenders would assess a borrower's ability to service and repay the loan at an interest rate of at least 7 per cent.
However, as of 21st May 2019, APRA have announced that this 7 per cent mortgage serviceability floor will now be abolished across the board. With interest rates expected to stay low and even a potential cut on the way, low inflation and wage growth, and a softening labour market – this means that the expectations for the cash rate have been revised down. As the cash rate works hand in hand with interest rates, it has also been expected that property mortgage rates will also stay lower for longer.
This change been described as the “biggest development for the property market in four years” and that the bottom of the market is here much sooner than anticipated. With the First Home Buyer 5 per cent deposit scheme on Jan 1 2020, the Coalition victory, potential interest rate cut and now APRA loosening their strings, our market can only be headed in one direction. The previous tight credit supply has been a “fire blanket” for our property market and these changes will not only stimulate our property market again, but our economy too.
Under APRA's new proposal, lenders will be permitted to review and set their own minimum interest rate floor for use in serviceability assessments for all borrowers across the board. However, APRA still do intend to have sound lending standards and requirements but this could potentially increase the borrowing capacity for buyers moving forward.
*Reference: Domain News
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