Home buyers may soon be able to borrow more in Australia, after the banking regulator proposed lowering the minimum interest rate lenders use to asses whether borrowers can afford their repayments.
Currently, most lenders use a rate of 7.25% to assess whether a borrower can meet their repayments, even though many mortgage rates are 4% or lower.
Under new proposals from the Australian Prudential Regulation Authority, lenders would be permitted to review and set their own minimum interest rate floor as long as it builds in a 2.5% buffer above the borrower’s mortgage rate.
“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7% floor and actual rates paid has become quite wide, in some cases possibly unnecessarily so,” APRA Chairman Wayne Byres said in a statement Tuesday.
The move could give a boost to the soggy housing market by allowing home buyers to borrow more. House prices in Sydney have slumped 14.5% from their mid-2017 peak, and Melbourne property values are down 11%, according to CoreLogic Inc. data.
Bank shares gained for a second day, having surged Monday after Scott Morrison’s center-right government pulled off a shock election win, killing opposition plans to wind back tax breaks for property investors.
Westpac Banking Corp. rose 1.9% in early Sydney trading; National Australia Bank Ltd. added 1.4% and Australia & New Zealand Banking Group Ltd. gained 1.7%.
“Being a catalyst for easing credit conditions, it would be a positive, potentially for the housing market,” said Ryan Felsman, a senior economist at the securities unit of Commonwealth Bank of Australia. “In terms of the bottoming of the housing market, that may mean it occurs a bit more quickly than expected, perhaps.”
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