What is the APRA?
Australia’s leading lending authority made recent moves to relax lending rules for banks and authorised deposit-taking institutions. Find out what this means and how it can make it easier for you to get a home loan.
We may have tweaked your interest with laxed lending rules, but you may also be asking yourself, “who the heck is the APRA and what do they have to do with my home loan?”.
Let’s cover the basics. The APRA is the Australian Prudential Regulation Authority. It was established in 1998 as an independent authority that oversees lending institutions such as banks and other authorised deposit-taking institutions (ADIs).
Simply speaking, the APRA is responsible for making sure the Australian financial system stays safe and sound. They do this by creating and monitoring standards and rules that banks and ADIs use to determine who can take out a loan and how much they can borrow.
What lending amendments were made?
Now that that’s out of the way, let’s get into the good stuff. The APRA recently made a decision to relax lending rules used to vet potential borrowers (that’s you).
After consulting with a number of banks and stakeholders, the decision was finalised in June of this year to make changes to the guidance on the serviceability assessments that ADIs perform on residential mortgage applications. They specifically confirmed that lenders will no longer have to use a minimum interest rate of at least 7% when reviewing home loan applications. The industry standard was around 7.25%.
Instead, banks and ADIs will have the power to set their own interest rate floor and use a revised rate buffer of at least 2.5% over the loan’s interest rate.
With interest rates at an all time low, and many experts predicting them to stay this way, your home loan application could be assessed at a rate as low as 6%. The move increases the borrowing power for many Aussies by making it easier to get a loan approved and making it easier to borrow more.
While the changes could see some borrowers increasing their capacity by up to 14%, lenders still need to adhere to a range of checks and balances to ensure buyers can’t jump into loans they can’t afford to pay off.
When thinking about how much you should borrow, bigger isn’t always better — especially if you’re a first time home buyer. Remember to set a realistic budget and stick to it!