New lending standards imposed by the prudential regulator mean that it might be more difficult for some house hunters to qualify for a home loan, though one expert says there are still ways to work around the changes.<\/p>\n
The Australian Prudential Regulatory Authority announced that from 1 November it would raise buffer test it applies to see if borrowers can handle future interest rate rises from 2.5 per cent to three per cent.<\/p>\n
It means that a borrower applying for a home loan at a two per cent rate today would have their application scrutinised to determine if they could still make the repayments at a five per cent interest rate.<\/p>\n
The changes are expected to reduce a person’s borrowing capacity by around five per cent, if their lender is subject to the new rules.<\/p>\n
“That would mean if you were previously approved for an $800,000 loan it would now be $760,000,” said Sarah Megginson, senior home loans editor at comparison website Finder.<\/p>\n
“$40,000 less is quite a big difference in this market.\u201d<\/p>\n
APRA announced that the changes would be implemented from 1 November, though it is understood that many banks have already been tightening their borrowing tests in the wake of the announcement.<\/p>\n
“Fixed rate loans have been ramping up over the past few months and that’s also a reflection of these changes – when fixed rates go up your lending power changes,” Ms Megginson said.<\/p>\n
House hunters with existing pre-approvals may be able to avoid the changes, but for those considering taking out a loan in November the changes do not necessarily mean they will be forced to slash their budget.<\/p>\n
“The important thing for people to understand is that, for now, this applies to banks and not non-bank lenders,” Ms Megginson said.<\/p>\n
“A non-bank lender, they often do everything that a bank does, they can provide all different types of credit but they are not a bank. They are a financial institution, a credit union or a building society… They are governed by slightly different rules.”<\/p>\n
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APRA’s new rules apply to authorised deposit taking institutions or ADIs, while non-bank lenders are still subject to the existing 2.5 per cent buffer.<\/p>\n
Shopping around outside the traditional ‘big four’ banks could help a borrower secure the right loan, but it also paid to remember that every lender will assess loan applications differently, Ms Megginson said.<\/p>\n
“For instance some credit unions can be friendlier to self-employed borrowers,” she said.<\/p>\n
“Depending on your situation, what these changes really remind us is that it pays to shop around.\u201d<\/p>\n
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