If you have been following the property market you will have seen some crazy times over the last couple of years.
This month (October 2021) the Australian Prudential Regulation Authority (APRA) announced changes to the serviceability buffer. This buffer is what it expects the banks and lending institutions to use when they are assessing mortgage applications.
The result is a reduction in maximum borrowing capacity for many who are trying to borrow.
This serviceability buffer is designed to ensure a borrower could still service a mortgage if interest rates were to rise. Banks will now be expected to apply a serviceability buffer of 3 percentage points, rather than the previous buffer of 2.5 percentage points, from October 2021.
For example, a borrower being offered a mortgage rate of 2.8% will have a maximum loan size determined by their ability to service a loan with an interest rate of at least 5.8%.
How will this change be felt?
If a borrower feels this impact depends on two things:
- It only reduces the maximum borrowing capacity and not everyone borrows the maximum they can afford.
- The buffer is not the only restriction on how banks decide the maximum loan size.
It is expected that as investors usually are hit with higher interest rates this change is likely to affect them more than home buyers.
What does this all mean?
It is more important than ever to ensure that your preapproval to purchase is up to date and you try to stay under your budget when you are looking to buy.
Overcomitting yourself to a mortgage may not be worthwhile in the long term for your own peace of mind and the chance that interest rates may move in the future.
At Select Conveyancing, we are here to help you with both your property purchases and your property sales. Contact us today
This blog is written as a guide and we strongly recommend that you seek your own financial advice.