Push for overhaul of home lending rules puts heat on APRA
There is increasing pressure to adjust the prudential regulator’s 3% interest rate buffer and mortgage risk-weighting to provide a leg-up for first home buyers.
The prudential regulator’s 3% interest rate buffer for mortgages is currently under scrutiny, driven by Liberal Senator Andrew Bragg’s successful bid to establish a Senate inquiry into the regulatory settings impacting home ownership.
The buffer assesses a borrower’s ability to afford loan repayments by assuming the cash rate is 3 percentage points higher than its current level. For example, a borrower applying for a loan with a 6% interest rate is assessed on whether they can afford a 9% rate.
Investment firm Barrenjoey has recommended lowering the buffer and ceasing the inclusion of HECS and HELP debts in loan assessments. The firm also believes APRA should adjust its Risk-Weighted Asset (RWA) requirements to favour first home buyers while slightly raising the risk assessment for other borrowers.
Property Council of Australia chief executive Mike Zorbas is also “keen to see the serviceability buffer thoroughly reviewed” and would like the committee to consider exempting HECS debts from these calculations.
