The Australian Prudential Regulation Authority’s (APRA), decision of increasing the servicing rates will likely have “little impact” on owners.
Raj Ladher (a mortgage specialist) said that the increase of the interest rate buffer is a small step forward.
According to him, the buffer will not have an impact on owner-occupiers because the floor rate at 5.5% is currently. He shared his thoughts with Your Mortgage.
APRA has ruled the banks must now apply a minimum interest rate buffer at least 3 percent above their loan product rates.
According to Mr Ladher, the current owner-occupier rates are at their lowest levels and most lenders will not exceed the floor in assessing borrowers.
He explained that a client could receive an interest rate of 1.89% by adding 3pps buffer. The assessment rate would then rise to 4.89%. The floor rate of 5 % would still apply.
Because investor rates are higher, this change will have a greater effect on investors. Regulators are trying reduce this.
Mr Ladher said that the new rule also helps borrowers who cannot repay their loans in due time.
To fully understand your borrowing capacity, it is best to speak to a mortgage professional who has access to multiple lenders.
Tenants are most likely to bear the brunt
Cate Bakos, president of the Real Estate Buyers Agents Association of Australia(REBAA), stated that the new change will decrease the amount homebuyers can borrow if they apply at their maximum capacity.
“For some borrowers who have multiple loans, they might find that the bank is assessing all of their borrowing capacity against all of their loans,” Ms Bakos said.
Ms. Bakos suggested that buffers be increased for borrowers who have other loans. This would make them less secure than someone borrowing just one property.
“Investors could be the group that are hit a little bit harder with borrowing capacity restrictions.”
Ms. Bakos said that the steep rise in rental growth and shrinking supply will be most detrimental to tenants.
If investors slow down in 2017, 2018, and 2019, tenants will have difficulty finding housing. She stated that mom-and dad investors are needed to assume the responsibility of housing.
Buyers are in a rush
Domenic Nesci, a Witnessi director and co-founder, stated that the new serviceability regulations won’t cause house prices to fall.
He told you that your Mortgage might be affected by the “slowing down” of regulators using soft cooling techniques to cool down the market.
Investors and buyers are more likely to concentrate on areas with high density that are less expensive.
“I see that rather than suppressing mass market demand I can see the demand shifting towards more affordability. “This means that buyers will prefer townhouses and units to purchase,” he said.
Nesci said that this could create a rush for these buyers to bypass any regulations just before Christmas.
“There’s no need to rush. He stated that both buyers and investors should be careful when purchasing property.
“You still want quality property, even though the banking sector might tighten borrowing later.”