Here’s some reprieve for prospective home buyers and Australia’s drying real estate industry. After the reserve bank announced a record low cash rate at 1 per cent a second cut in just two months, there has been a chain reaction in the economy. Borrowers now can borrow more and at a lower rate of interest.
The Australian Prudential Regulation Authority (APRA) declared that banks, now, will have the freedom to set their own serviceability buffers, with only 2.5%, in order to ascertain their customer’s potential to pay off mortgages.
The APRA had fixed the minimum rate at 7% minimum 4.5 years ago. “In the prevailing environment, a serviceability floor of more than 7 per cent is higher than necessary for ADIs [Australian deposit-taking institutions to maintain sound lending standards,” APRA’s chairman Wayne Byers said.
The strict rules and rates set were not helping the market. Falling house prices and a drought in the real estate occasioned from these policies. With a more relaxed process, people may move towards buying homes. A family with an income of $109,688, will be able to afford $60,000 more, if their loan was assessed at 6.25 per cent instead of 7.25 per cent. This will lift the tension surrounding real estate, a large contributor to Australia’s economy.
This decision was the outcome of a joint discussion between the APRA and major property market stakeholders. The laws were established 4 years ago under different conditions. Since the economic conditions changed, the policies governing it needed a change too, which was brought up and to practice by the APRA.