New modelling by Independent Mortgage Planners shows that home buyers are set to receive a borrowing boost to loans in the order of $50,000 due to changes in lending standards.
A single borrower with an annual income of $80,000, no other debts and average (or below) living expenses could today
expect to be approved for a maximum loan amount of $512,000.
This could increase to $567,000 under the proposed relaxation of loan serviceability rules flagged by the banking regulator last week.
This translates to a wider choice of houses being available to purchasers at Accolade.
That same loan could increase again to $598,000, if the Reserve Bank also delivers anticipated interest rate cuts of half a percentage point
in coming months, by enabling borrowers to service higher debts from a given income.
If banks did relax standards to the permissible maximum, a dual income couple with no kids, both on incomes of $80,000, could expect
to borrow about $150,000 more - boosting their potential loan size over the $1 million mark. The same couple, but with two kids in tow,
could borrow $122,000 more, for a total loan size of approximately $841,000.
Since 2014, lenders have been required by the Australian Prudential Regulation Authority to make sure potential borrowers can service their
loan sizes at an interest rate of 7%, with most lenders using a slightly higher test of 7.25%.
The regulator now proposes borrowers be tested for their capacity to meet repayments at the prevailing mortgage rate - currently around 3.75% -
plus a buffer of 2.5% being a total of 6.25%
If the Reserve Bank also lowered interest rates by another half a percentage point, that would fall to 5.75%, a full 1.5 percentage point below
the current test.
The calculations assume that lenders choose to relax their standards to the maximum permissible.
