Rising house prices have put Australia in a housing affordability crisis. But APRA has plans to change that...
Background: We all know house prices have been going up, up and away for a while now. In fact, data at the end of August showed Aussie house prices are more than $100,000 higher than they were last year.
What happened: We also know who we can blame, right? Yup, those pesky low interest rates (which BTW are still at 0.1%) have meant it's never been cheaper to repay a loan. As a result, people are borrowing around six times their income. Yikes.
What else: Rising house prices have put Australia in a housing affordability crisis. So, the banking regulator (aka APRA) has increased the serviceability buffer to 3%. This means someone who could borrow $1 million under the old buffer could now only borrow about $950,000.
💡When you go to take out a home loan, one of the most important criteria that banks look at is your serviceability - aka whether you can meet the repayments of the loan.
💡The banks are also required to chuck on a serviceability buffer. This is a percentage 'buffer' that gets added to your loan repayments to see if you could still make the loan repayments if interest rates increase.
💡This means if your home loan rate is 3%, banks will need to assess whether you can make repayments at a 6% interest rate (3% home loan rate + 3% serviceability buffer = 6%). As the buffer goes up, borrowing capacity goes down. APRA is hoping this'll cool off house prices.
Sign up for Flux and join 100,000 members of the Flux family