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Unpacking the APRA Changes

July 11, 2019
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Last week, the Australian Prudential Regulation Authority (APRA) confirmed it would scrap a rule that has seen new mortgage customers assessed on their ability to manage repayments with 7.25 per cent interest rates.

APRA advised that instead of that interest rate “floor,” it would require banks to test if customers could manage repayments with rates at least 2.5 percentage points above a loan’s current rate.

What do these APRA changes mean for you?

These changes mean that some financial institutions have greater flexibility to set their own serviceability limits, while still maintaining detailed application processes and considering additional individual risk factors.

With many mortgages currently attracting interest rates of about 3.5 per cent, the changes mean banks will need to test whether borrowers can afford their loan at a rate of 6 per cent, instead of 7.25 per cent. As a result, analysts have estimated borrower’s lending capacity may increase by up to 10%.

To put it into perspective, someone earning the average full-time wage of $83,455 could see their borrowing capacity rise by $66,0000, to $544,000, according to RateCity.

What next?

If you’ve been saving for a home, or potentially even given up on the idea because you think it might not be feasible it’s worth taking another look.

“These changes may mean you’re able to increase what you can borrow, however, it’s important to keep in mind that banks still have criteria you need to meet to be considered an eligible candidate,” says Inovayt Finance general manager Jordan Morieson.

“Essentially, these changes may allow you to be a few steps closer to obtaining a mortgage. If you had given up due to the tightening on lending it’s worth reassessing and speaking to a mortgage advisor to determine how these changes may positively impact your borrowing capacity,” says Morieson.

If you are currently saving for your first home or investment property, get in touch with Inovayt today for a no obligation, 5-minute chat to discuss your options further.

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