Contrary to the financial regulator’s advice, the Coalition promises to relax home lending rules if it wins government.
Having concluded that it is an antiquated regulation, Shadow Housing Minister Michael Sukkar says that the Coalition plans to abolish the serviceability criteria. This precludes around 40% of first-home buyers from receiving a home loan.
While major banks and property groups back the Coalition’s plan, APRA is not for more relaxed lending rules.
The regulator has counselled against removing what is effectively a serviceability buffer. This is when banks weigh up whether someone applying for a home loan can repay it.
As a rate is set above the loan interest rate, the serviceability buffer was raised from 2.5% to 3% during COVID, when the official cash rate was at an all-time low of 0.1%.
Sukkar argues that the serviceability buffer, now out of whack with elevated interest rates, has by default blocked many Australians from receiving home loans.
“The one-size-fits-all rule for assessing serviceability is stopping tens of thousands of Australians from getting a home loan even when they can meet repayments with a prudent margin against unexpected future rate rises,” said Sukkar.
The Coalition is planning to rectify this dilemma by changing the Australian Prudential Regulatory Authority's (APRA) mandate, allowing banks to widen their borrowing criteria.
However, APRA chair John Lonsdale defends the serviceability buffer as a safeguard against banks taking on too many risky loans, urging it to remain at 3%.
Also acting as a safeguard for borrowers, Lonsdale notes that household debt is already high relative to income, and higher than in other nations.
"This high household debt is a key vulnerability if adverse economic scenarios came to pass," Lonsdale recently said.
The Coalition also plans to instruct APRA to adjust how loans backed by Lenders' Mortgage Insurance (LMI) are treated.
The Coalition’s proposed LMI adjustments mean banks would no longer be required to hold more capital against LMI-backed loans, which set a premium on those loans which leads to banks charging higher interest rates on them.
Other property-related measures proposed by the Coalition include allowing first home buyers access to up to $50,000 of their superannuation for a home deposit.
Meanwhile, Treasurer Jim Chalmers recently instructed APRA to disregard HELP repayments when assessing an applicant's ability to service their mortgage. This is if those debts are close to being paid off.
