The Coalition’s proposal to relax mortgage lending rules would “barely move the needle” for Sydney buyers, while potentially exposing new borrowers to a string of risks.
Peter Dutton has pledged to ask the financial regulator to review the mortgage serviceability buffer if elected in May, in a bid to help housing affordability and get more Australians on the property ladder.
APRA currently requires lenders in Australia apply a 3 per cent serviceability buffer on top of the interest rate when assessing a borrower’s ability to repay a home loan.
The buffer was raised from 2.5 per cent during Covid, when interest rates were at record low of 0.1 per cent.
MORE: Albo, Dutton wage war on key election issue
Worst Aussie PMs for housing ranked
Peter Dutton has proposed reducing the serviceability buffer, but new research shows this could hurt new buyers. Picture: Richard Dobson / Newswire
MORE: ‘Disgusting’ Jackie O in $13m neighbour war
Sandilands’ rental bond company model found ‘unlawful’
A Canstar analysis shows that a drop in the serviceability buffer from 3 percentage points to the previous buffer of 2.5 could see a person’s borrowing capacity increase by an estimated $20,000. That’s on an interest rate of 6 per cent rate for an average Australian income earner on around $103,000. With a 2 per cent buffer it would increase by $40,000.
Research by Oliver Hume revealed that if the buffer dropped by 0.5 or 1 per cent, this would only open up borrowers on an average income to one more suburb in Sydney, Menangle Park.
Canstar’s director of data insights Sally Tindall said there were huge risks involved in reducing the buffer rate and that pushing to borrow “every last cent,” wasn’t the solution to making the market more affordable.
MORE: Wild reason some Aussie homes just don’t sell
Canstar director of data insights Sally Tindall says there were risks involved in reducing the buffer. Picture: Tim Hunter.
“In the scheme of buying a house it ($20,000 extra) isn’t very much, it’s a small drop in a very big ocean,” she said.
“That buffer is crucial to make sure people aren’t taking on debts they can’t repay … for a lot of people who bought property when interest rates were at record lows, they really struggled when 13 rate hikes came and were stuck with big debts compared to their income, fuelled by ultra low rates and a moderate serviceability buffer,” she said.
“We don’t know what the future holds and making sure people borrow within their means is important so they don’t have super size debts that don’t hang over their heads for decades.”
Dee Why Mortgage Choice broker James Algar said “the responsible lending stress test is there for a good reason, getting rid of it all together would be an irresponsible move.”
Serviceability relaxing could help more buyers have bigger budgets to spend. Picture: NewsWire / Damian Shaw
“There is an argument that we are seeing interest rates at a so-called peak already, so adding a significant hurdle over the peak seems a little unnecessary.”
A typical Sydney couple earning a joint income of $240,000 could borrow an extra $70,000-$100,000, he added. “That’s pretty meaningful. Not every bank has a 3 per cent stress test right now, and it’s worth talking to a broker so you know what can be possible.”
Sydney broker Joseph Daoud said although the buffer protected borrowers from over leveraging when rates were low, the 3 per cent figure was unrealistic with rates as high as they now are.
Matt Bell from Oliver Hume said it may not move the needle for NSW.
“Buyers may use a mortgage calculator to see how much they can afford, then all of a sudden they don’t qualify because of these buffer rates … no-one can afford a 9 per cent rate,” Mr Daoud said.
Oliver Hume chief economist Matt Bell admitted the proposed buffer changes would not make a substantial difference for those people buying a $1m-plus house.
“In NSW, we’re not seeing it move the needle a lot in terms of actual suburbs it changes, and those that it does are very affordable suburbs, in the very outer metro regions of Sydney.”
Jill Radge, a 26-year-old teacher, recently purchased her first home, a one-bedroom unit on the Northern Beaches.
First homeowner Jill Radge was able to purchase her first home with the help of first homebuyer schemes. Picture: Sam Ruttyn
“My dream was always to live in Sydney, I grew up in The Beaches and I really wanted to buy there … I worked really hard at saving, I had small stints living out of home but I moved back home to save a big chunk of money,” she said.
She said the First Home Buyers Assistance Scheme which waives transfer duty for homes valued under $800,000 was a “huge help” to getting into the market.
Her HECS debt impacting her borrowing power was the biggest barrier, which she felt shouldn’t affect a first homebuyer’s ability to service a loan.
Every $10,000 of HECS debt would reduce her borrowing power by around $27,000, she added.
Ms Radge said HECS was the biggest hurdle, not the serviceability buffer. Picture: Sam Ruttyn
“It took me by surprise, a lot of young people are wanting to buy in Sydney and it’s really difficult when they’ve been at uni for several years and worked really hard to get into a professional career and then your HECS is a huge hurdle to getting into property.”
McGrath Pittwater agent Luke Nolan-Harris said the only way to control prices and get more people into the market was adding supply.
“I would love to see development incentives in lifestyle locations where people want to live,” he said.
“Supply needs to be the focus, instead of incentives that will increase prices that will make it more difficult for people to buy in five years time.”
English (US) · 