Following a direct request from Western Australian Treasurer Ben Wyatt, the Australian Prudential Regulatory Authority (APRA) has confirmed in a statement today that it will relax its mortgage serviceability buffer.
The buffer sets the standard for how banks assess mortgage applicants. Previously, the buffer required new borrowers to have the financial capacity to cope with a mortgage interest rate of at least seven per cent. This policy was set in 2014, in an environment where interest rates were more likely to rise and there was unsustainable house price growth in the Eastern States.
Now, APRA will require a floating floor of at least 2.5 per cent over the loan’s interest rate.
In a letter to APRA on May 3, 2019, Mr Wyatt outlined his concerns about the negative impact that the buffer was having on the Western Australian housing market. The Treasurer noted that the buffer was especially problematic given one of the main challenges facing property markets in Western Australia is access to finance.
The changes announced today complement the McGowan Government’s recent relaxing of eligibility criteria for Keystart.
As stated by Treasurer Ben Wyatt:
“I’m pleased APRA has taken on board my concerns.
“The serviceability buffer settings are especially problematic given the current challenges consumers face accessing finance. While the McGowan Government’s recent reforms to Keystart help address this issue, these changes would further help Western Australians to secure finance, and provide a welcome boost to the WA housing market.
“The McGowan Government will continue to monitor national policy settings and represent Western Australia’s best interests where necessary.”