APRA Reduces Borrowing Capacity Levels

Today the banking regulator (APRA) has stepped in to curb increasing debt levels in Australia, by increasing “servicing rates” for home loans, which will effectively reduce the borrowing capacity of all potential home loan customers.

This change by APRA is in response to household debt growing at a faster rate than normal and ensuring the financial system remains safe and robust.

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From www.mpamag.com –

Lending restrictions have been introduced to quell the growing property market and force banks to act more conservatively when assessing the serviceability of borrowers.

In a letter to Authorised Deposit-taking Institutions (ADIs) on Wednesday, APRA said it would require banks to test whether new borrowers could afford the repayments on their loan if the interest rate went up by 3%. This marks a 50 basis point increase from the previous assessment rate of 2.5%.

APRA chairman Wayne Byres said this move was in response to household debt growing at a faster rate to income, as well the recent increase of borrowers with a debt-to-income ratio of six or more.

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