APRA Guideline Confirmed
Further to the APRA Media release on 21 May 2019, it has now been confirmed that its “guidance on residential mortgage lending will no longer expect them [ADIs] to assess home loan applications using a minimum interest rate of at least 7 per cent… Instead, ADIs will be able to review and set their own minimum interest rate floor for use in serviceability assessments and utilised a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.”
The Big 4 Banks (ANZ, CBA, NAB and WBC) have been utilising a 7.25 per cent serviceability assessment and the revised guidance is likely to reduce this assessment to ~6.00 per cent.
In addition to the two recent 25bp rate cuts announced by the RBA, this announcement is expected to assist in underpinning Australia’s soft housing market. As evidenced in Corelogic’s June 2019 home value index, Sydney recorded a slight rise of 0.1% and Melbourne also recorded a slight rise of 0.2%. These are the first monthly increases since July 2017 and November 2017 respectively.
Read the full APRA Media release here.