Australian’s looking to purchase a home or refinance existing loans will now have their home loan borrowing capacity increased due to changes from the Australian banking regulator, APRA.
In late 2014, APRA introduced a rule that Lenders must assess affordability for home loan applications at a minimum interest rate of 7%. The majority of lenders added another 0.25% on top of this buffer meaning anyone applying for a home loan would have their monthly repayments assessed at 7.25%. As a result, many potential borrowers have not been able to secure the loan amounts required to purchase a home or consolidate debts in a home loan refinance.
Effective immediately, APRA have announced that banks can now review and set their own affordability assessment rates, as long as they apply a minimum buffer of 2.5% over the loan’s actual interest rate.
With the recent interest rate reductions in June and July, lenders are now offering interest rates as low as 2.89%. The new APRA regulation means that a home loan with an actual interest rate of 3.10% could be assessed for affordability at just 5.60%.
For many Australians, these changes will significantly increase their borrowing power by tens of thousands of dollars and many people who were previously unable to secure a home loan due to affordability will now have the opportunity to enter the housing market.
ANZ was the first major lender to implement the new changes, announcing they will test borrowing capacity with either a minimum 5.5% interest rate or 2.5% above the actual interest rate, whichever is higher. St George & Westpac soon followed announcing they will be assessing home loan applications with either a minimum 5.75% rate or 2.5% above the actual interest rate, whichever is higher. Other lenders are currently in the process of reviewing their policies and are expected to announce their new affordability assessment rates in the coming days.
If you’ve been unable to secure a home loan due to not meeting a lenders affordability criteria, now is the perfect time to get in touch with an Assured Lending Mortgage Broker to see what your new maximum borrowing capacity is. Our service is completely cost and obligation free so give us call today for more information.
Contact an Assured Lending Mortgage Broker for more information today
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