APRA forces banks to raise home appraisal rates to counter risk

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“For eight long years, things only got worse under the Liberals and the Nationals, who pretended it wasn’t their problem.”

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As part of this change, banks are to test whether new customers can handle their repayments at an interest rate 3 percentage points higher than the actual loan rate. So far, banks have added 2.5 percentage points – known as the “sustainability buffer” – to the loan rate when assessing a customer.

Analysis from the comparison website Canstar shows that a customer with an income of just over $ 90,000 would see their borrowing capacity reduced by $ 30,000 as a result of the switch. A person earning close to $ 60,000 would see their borrowing capacity reduced by $ 17,000.

Since the Reserve Bank started cutting interest rates in mid-2019, average mortgages to buy an established home have swelled. Across New South Wales, the average mortgage loan jumped 36% to $ 755,000, while in Victoria it rose by a third to $ 634,000.

APRA said increasing the “service buffer” by 0.5 percentage point would reduce a typical customer’s borrowing capacity by about 5 percent. This would mean that a customer’s borrowing capacity that was previously $ 500,000 would drop to $ 475,000.Credit:Rob homer

APRA said the “modest” tightening of lending rules would likely have the biggest impact on real estate investors, and that it would closely monitor risks in the real estate market, with the possibility of further restrictions on home loans if necessary.

APRA President Wayne Byres said the move was a response to home debt growing faster than household income and a growing number of clients borrowing more than six times their income.

“By taking action, APRA is working to ensure that the financial system remains secure and that banks lend to borrowers who can afford the level of debt they take on, both now and in the future. ‘future,’ Mr. Byres said.

There has been speculation that APRA will introduce restrictions on home loans for months, but regulators have also been keen to avoid making it even more difficult for first-time buyers to enter the property market.

APRA said first-time homebuyers were generally less likely to borrow a high multiple of their income because their borrowing capacity was more limited by the size of their deposit.

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