APRA move means more home loan borrowing

The Australian Prudential Regulation Authority’s (APRA’s) scrapping of the seven per cent ‘stress test’ buffer on home loans will effectively see a nine per cent increase in borrowing capacity for owner-occupiers, according to RiskWise Property Research.

This would rise to between 13-14 per cent if the Reserve Bank of Australia (RBA) undertakes two interest rate cuts before the year is out.

With the stress test reduced or removed, it would mean if the interest rate for owner-occupiers was about 3.75 per cent, they would pay about 6.25 per cent which would create a nine per cent borrowing capacity.

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Doron Peleg, RiskWise chief executive, said with the current ultra-low interest rate and two interest rate cuts projected by the RBA, APRA’s stress test was a major barrier for borrowers in an already tough market.

“If there are no interest rate cuts the increase in borrowing capacity will be an increase of around four-to-five per cent for investors and for owner-occupiers about nine per cent,” Peleg said.

“However, if the RBA cut rates twice, we will see an increase of around nine per cent for investors and potentially 13-14 per cent for owner-occupiers.

“This will be a major boost to the market, especially as now the number one risk has been removed thanks to a Coalition win and the elimination of the threat of taxation changes to negative gearing and capital gains tax.”

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This is so confusing. First they wanted to reduce house prices because they are too expensive, then they wanted to slow investment lending because it is driving up prices, then they capped interest only loans to slow the market. All the while the stress test interest rate was set at a very high rate to slow the market. Then we have a banking commission tell us the banks are all lending too much. Lets send all of them to jail. Now they want to encourage more lending. Were they wrong then, or are they wrong now, or just mad.

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