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APRA changes mean Australians could now borrow tens of thousands more

Banking regulator, APRA, recently removed the 7.00% buffer rate used to assess whether you can afford your mortgage repayments.

Combined with many lenders now offering home loan interest rates under 3.00%, you may be able to borrow tens of thousands of dollars more in your mortgage.

What's changed?

Before a bank will approve your mortgage application, they need to work out if you could still afford the loan if interest rates were to suddenly rise.

In 2014, banks were required by law to use an interest rate of at least 7.00% as the “floor rate” in these calculations. Most banks applied a minimum rate of 7.25%. If you couldn’t afford a loan with an interest rate this high, your loan application would likely be declined.

In 2019, the Australian Prudential Regulation Authority (APRA) changed the laws around mortgage serviceability. Now banks can assess whether you can afford a home loan based on their own floor rates, or a “buffer rate” of 2.5 percentage points above your loan’s current rate – whichever is higher.

Example:

Imagine applying for a $500,000 home loan with an advertised interest rate of 3.45% from a lender with a floor rate of 5.75%. Adding the serviceability buffer of 2.5 to the advertised rate of 3.45% gives you a buffer rate of 5.95%.

Because this is higher than the lender’s floor rate of 5.75%, your application will be assessed on if you could afford your repayments if interest rates were to rise to 5.95%. These repayments could cost around $2982 per month, assuming a 30-year loan term.

What does this mean for you?

Now that banks can be less strict when assessing home loan applications, you may be able to borrow more money than you could before.

A larger loan could give you more options, like buying a bigger property, renovating, or investing in a growing area.

For example, RateCity analysis found that a borrower on a single income could potentially borrow around $50,000 more under the new lending rules. A family on dual incomes could potentially borrow around $60,000 more.

Estimate of home loan borrowing capacity under new rules 

Scenario 1: single income ($83,455) 

Serviceability

Rate

Borrowing

Amount

Extra

Borrowing

7.25% 

$478,000

 

6.50%

$516,000

$38,000

6.25%

$529,000

$51,000

6.00%

$544,000

$66,000

 Scenario 2: family of four (household income $109,688) 

Serviceability

Rate

Borrowing

Amount

Extra

Borrowing

7.25%

$559,000

 

6.50%

$603,000

$44,000

6.25%

$619,000

$60,000

6.00%

$636,000

$77,000

Assumptions: Average household income data according to ABS Census 2015/2016. Assumes one parent earning 30% of $109,688 and the other 70%. Assumes monthly household expenses of $3,500.

Single income figure from ABS Average Weekly earnings Nov 2018, Full-time adult average weekly ordinary time earnings. Assumes monthly expenses of $2,000. 

How can I find a bigger loan?

RateCity offers a simple way to find a mortgage that may let you borrow more.

Here’s how it works:

  1. Tell us if you’re buying property or refinancing to get a cheaper rate
  2. Tell us if you want to live in the home as an owner-occupier or rent it out as an investment property
  3. Tell us the value of the property and how much you want to borrow
  4. We’ll search the RateCity database for home loan options that may suit your needs
  5. Select your preferred lender from the options we find
  6. Enter your contact details so a lending specialist can contact you

Remember that the cheapest home loan may not be the best option for your needs. It's important to compare the interest rates, fees, features and benefits of differest options before making a choice. 

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How much more could you borrow?

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  • Find low rates
  • Connect with top lenders
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