Borrowers will get extra bang for their bucks under new lending rules for banks
Australia’s slumping property market has just been given an injection of life with news that banking regulations will be relaxed to give borrowers access to much bigger loans.
The Australian reports that a shake-up unveiled by the Australian Prudential Regulation Authority means that tens of thousands of prospective home buyers are expected to charge into the housing market.
The outcome of the new easing of regulatory restrictions will be that borrowers will be able to get hold of mortgages 14 per cent bigger than in the past.
UBS economist Carlos Cacho told The Australian that households on an income of $200,000 a year could boost their loans by an extra $150,000 to $1.25 million if they gained a leading market interest rate.
“APRA’s changes will make it easier for home buyers to obtain a loan by lowering the minimum interest rate against which applicants must be assessed,” Treasurer Josh Frydenberg The Australian. “This is further good news for home buyers and the property market.”
The new rules allow lenders to offer bigger loans to borrowers who in the past were unable to meet a requirement that they could continue to repay their mortgage if interest rates rose above a hypothetical minimum of 7 per cent.
The banking sector will now be able to set their own interest rate floor to assess customers.
Mr Cacho said for households on a combined income of $125,000 a year, maximum loan sizes would jump by $90,000 to $765,000 while the typical household, on a combined income of $85,000, would be able to secure an extra $30,000.
APRA boss Wayne Byres said the old regulation, set in 2014, was now “higher than necessary”.
But he said that banks should not see the new “go easy” approach as a sign to wave in a new “free for all” era.
The relaxing of lending rules follows concern from the Morrison government and financial watchdogs about the economic impact of falling house prices, which are down by 15 per cent in Sydney and Melbourne since mid-2017, The Australian said.
Property developers said the decision would help lift construction and create jobs.
Master Builders Australia chief economist Shane Garrett said the new lending rules were “great news at a time when the potential exists for a recovery in new home building”.
Property Council of Australia chief executive Ken Morrison said: “This is a sensible decision that reflects the reality of the current interest rate environment and housing market conditions.”
Mortgage applications have become tougher for borrowers since the financial services royal commission, where the sector was pilloried for danregously loose standards.
The squeeze on credit has contributed to the lowest lending growth on record, which has starved the economy of finance, The Australian said.
– This story is based on a report originally published in The Australian.