Important changes to serviceability you need to know

Recently APRA recommended changes to the current way in which lenders assess serviceability – which is your financial ability to pay down a loan. These potential changes could spark some shifts in the property market, and we’re pretty excited about it! 

The current system in place is that lenders must presume that interest rates are at least 7.25% and the borrowers income needs to be high enough to be able to comfortably service the home loan repayments after all other liabilities and living expenses have been considered.

What APRA have proposed is that instead, lenders adopt a 2.5% buffer above whatever the interest rate you’re applying for is. Essentially bringing back the pre-APRA way the banks used to do it.

The proposals by APRA have been submitted and there’s a four-week consultation period with all the banks that ends 18th June. From there a final version will be completed and most expect these changes to come into effect from 1st July.

This feels like a great move by the regulator as they’ve finally acknowledged that we’re now in a long phase, low interest rate environment. Interest rates are years away (if at all) of reaching the pre GFC historical average of 6-7% so it makes sense that a new servicing model be brought in to reflect the current market.

If you’ve been looking at purchasing a property over the past 12 months and have had servicing issues, get in contact with us today and we can run your numbers again under the proposed new changes.