Major Aussie push to stop homeownership being 'just for the rich'

The Coalition is looking into whether changes need to be made to the prudential regulator (APRA) to allow more Aussies to be approved for a mortgage. There are fears that the Australian Prudential Regulation Authority's (APRA) rules like the serviceability buffer are doing more harm than good.

At the moment, Aussies wanting to get a home loan aren't just assessed on whether they can afford an interest rate offered by a bank, but they have an extra 3 per cent added on top to make sure they can survive any major changes. The Motley Fool's chief investment officer Scott Phillips told Yahoo Finance the serviceability buffer should actually be reliant on the Reserve Bank of Australia's (RBA) official cash rate rather than a fixed number.

"APRA should be tasked with using the lending buffer counter-cyclically because my biggest concern right now is not the current affordability. It's actually the future affordability," he said.

RELATED

• Borrowers trapped in ‘mortgage prison’ hit with $389 extra cost: ‘Defies logic’

• Demands to keep multi-million dollar surcharge 'rort' alive in Australia: 'Lumber us all'

• Young Aussies quitting in droves over bleak new workplace trend: 'I just can't'

"When the RBA eventually drops rates, what will happen is that increased affordability will almost certainly be capitalised in higher house prices."

Liberal MP Keith Wolahan thinks the 3 per cent buffer is too high at the moment, especially when the RBA official rate is at a 13-year high.

“The buffer should reflect both risk and homeownership. APRA must take the interest rate cycle into account for a fairer approach,” he said.

Andrew Bragg, the Coalition’s home ownership spokesman, added that more scrutiny should be applied to the prudential regulator to get more Aussies into the market.

“I think the fact that mortgage delinquencies are next to zero is actually a problem. It tells you the banks can’t take any risk, or won’t take any risk, and that’s bad because we want banks to take risks on first-home buyers,” he said.

“If you’re at the top of a tightening cycle, and you’re adding 3 per cent, you’ve got to be rubbing a lot of first home buyers out.”

Shadow treasurer Angus Taylor told the Australian Financial Review the opposition would consider "sensible proposals" that prevent "access to home ownership and financial services becoming a privilege only the rich can afford".

Do you have a story? Email stew.perrie@yahooinc.com

To buffer or not to buffer: How changing the rate could affect the housing market

There have been some concerns about house prices over the next few months if the RBA does cut interest rates from the current 4.35 per cent.

A lower rate will allow more buyers to come into the market, which would rapidly increase demand and prices could skyrocket.

Phillips believes having a counter-cyclical buffer rate, meaning it would go even higher than 3 per cent if the official cash rate drops, would protect the market.

But the Coalition is keen on ensuring everyone can access the market in the first place.

The opposition launched a senate inquiry into mortgage regulations last month to see if the lending system in Australia needed an overhaul. While Taylor didn't explicitly say amending the buffer would be a policy that the Coalition will take to the election next year, he will wait and see what the inquiry recommends.

ANZ has already made a submission to the inquiry and cautioned that some current APRA regulations could be viewed as too tough.

“We have seen that, over time, the average gross income of ANZ’s home loan customers has increased to a greater degree than Australian average gross household incomes,” the bank said.

“Building on this, we are conscious that the impact over time of regulation and bank caution, among other factors, is relevant to the amount of credit that is available to some people.”

APRA's serviceability buffer was raised from 2.5 per cent to the current 3 per cent back in 2021.

The RBA rate at the time was just 0.1 per cent and APRA wanted to make sure Aussies would be able to still afford their mortgage if the official cash rate went up.

Fast forward a few months and that buffer made sense considering the RBA hiked rates more than a dozen times from 2022 to 2023.

APRA's buffer causing nightmares for existing homeowners as well

But not only are there concerns that the buffer is preventing first-home buyers from jumping onto the market, but Canstar analysis shared with Yahoo Finance found the 3 per cent buffer could be creating a roadblock for existing borrowers trying to refinance to a lower home loan rate and lower their repayments.

Existing borrowers repaying a $600,000 loan over 30 years with an average rate of 6.37 per cent who apply to refinance to a lower rate loan of 5.89 per cent, would be assessed at a rate of 8.89 per cent once the buffer is applied.

Refinancing could potentially save the borrower $186 per month. If the borrower was refinancing from the average market rate of 6.88 per cent, the savings would be even greater at $389 per month.

But if the lender determined they weren’t able to service a loan with the buffer added at 8.89 per cent, the borrower would be declined for the 5.89 per cent loan and unable to refinance. That’s despite them already repaying their loan at a higher rate.

Commonwealth Bank announced it would be lowering its serviceability buffer from 3 to 1 per cent for eligible refinancers. Westpac and NAB also announced they would relax their tests for certain refinancers.

Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.