Australia's banking regulator announced on Tuesday 21st of May 2019 it's plans for relaxing the assessment rate for home loans.
Serviceability assessments are used to make sure borrowers can repay their loans under different circumstances: for instance, if banks have to increase mortgage rates.
In 2014, when household debt and property prices were rapidly rising, APRA introduced a mortgage rate 'floor' of 7 per cent, or a buffer of 2 per cent above the mortgage rate being offered. Banks were to use whichever was higher. This meant that regardless of the cash rate or standard variable rate at the time of applying for a loan, banks would assess a borrower's ability to repay a loan at a mortgage rate of at least 7 per cent.
If APRA kept its 7 per cent floor in place, the gap between actual mortgage rates and the serviceability floor could become unnecessarily wide. This change which could come into place in June may directly help borrowers obtain higher loan amounts This is big industry news, because it could potentially increase the maximum amount people can borrow.
Movements in the volume of mortgage lending is one of the leading indicators of house price movements. Therefore, a pick up in mortgage lending, enabled by eased assessment criteria, could point to property prices stabilising, or even increasing earlier than anticipated.
Original source article can be found here https://www.domain.com.au/research/apra-is-revising-its-7-per-cent-mortgage-serviceability-floor-839781/
