New Home Loan Rules
When thinking about applying for a home loan, ‘APRA’ is a name that these days many more Australian homebuyers may be aware of.
APRA is short for The Australian Prudential Regulation Authority, an independent statutory authority that helps protect our financial systems.
Put simply the aim is to ensure community confidence in the various institutions (banks, insurance companies and superannuation funds) that are important to our personal and national financial health. However, APRA does not, guarantee any of these institutions.
APRA’s guidance on residential mortgage lending
In early July 2019, APRA announced that it would (as had been widely expected) change its guidance on the serviceability assessments that ADIs (major banks) apply on residential mortgage applications.
That’s important because the rules have a big bearing on how home loan applications work and how much money people can borrow.
APRA confirmed that home loan application would no longer be assessed using a minimum interest rate of at least 7%. Common industry practice has been to use a rate of 7.25% and that’s way above current loan interest rates and needed to be changed.
Now lenders will be able to review and set their own minimum interest rate for use in serviceability assessments (how much anyone can borrow) and use an interest rate buffer of at least 2.5% over the lender’s standard base interest rate, but that can’t include start-up rates or special offers.
APRA originally introduced its serviceability guide lines in December 2014 as part of a package of measures designed to reinforce residential lending standards. Back then the residential market was in a very different place than it is today or has been over the past 12-months.
The new guide lines have been welcomed by the banking and property industries. That’s despite the suggestion that the previous APRA rules were an over-reaction to market conditions in late 2014.
However, it’s reassuring that we have APRA acting in the wider interests of the community by helping to guide how much people can afford to borrow to purchase a new home.