The Australian Prudential Regulation Authority has clamped down on borrowing in a bid to cool off surging house prices.
The regulator has stepped in with new rules that make banks check if borrowers can afford repayments if the interest rate was 3 percentage points higher than the loan product rate, which is a rise from the 2.5 per cent previously.
In real terms it will reduce the amount someone can borrow by tens of thousands of dollars, or around 5 per cent.
To provide some perspective, a borrower on around $90,000 a year would be able to borrow $30,000 less and a borrower on around $60,000 would have their borrowing power cut by $17,000.
Shore Financial CEO Theo Chambers told Domain most of his Sydney clients are currently trying to borrow their maximum amount.
“This will push them back even further,” he said.
“I understand it might help affordability … it might soften the crazy prices, [but] it reduces someone’s ability to borrow.
“The problem is, the Sydney property market is so expensive, they’re already struggling, they’re already compromising.”
Here in Melbourne, Mortgage Choice’s Gary Megalogenis said the change would hit first homebuyers hard.
“They are struggling at the moment and adding that 0.5 per cent buffer on top of the already high buffer – it will impact them,” he told Domain.
Canstar Group’s Steve Mickenbecker says the change may mean buyers may have to change the suburb they are buying in but it won’t be enough to drive them from the market altogether.
“If you’re not borrowing the maximum, this means nothing to you,” he said. “If you’re right at the margin, it matters,” he told Domain.
Mr Mickenbecker said homebuyers needed to understand that interest rates will one day go up anyway.