News

APRA clamps down on borrowing

07 October 2021

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.

Latest

The best thing you might want to do if investing in commercial property is assemble a ‘dream team’ of experienced operators that understand the process and understand why you are investing.

Read more

Mortgage Professional Australia has announced that Perry Finance Director and Melbourne Finance & Equity Group CEO Cameron Perry is one of MPA’s Top Ranked Commercial Brokers of 2022.

Read more

Prospective home buyers and investors are being warned to temper their expectations as the dust settles on the Reserve Bank’s first interest rate rise in years.

Read more

The Reserve Bank this week pulled the trigger on interest rates as expected, hiking the official cash rate by 25 basis points to 0.35 per cent.

Read more