APRA reduction in mortgage hurdle will boost housing activity

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“The announcement by APRA that the mortgage serviceability test is to be relaxed is great news at a time when the potential exists for a recovery in new home building,” Master Builders Australia Chief Economist Shane Garrett said.

“Previously, mortgage loans were only to those borrowers who could afford to service the mortgage repayments at a hypothetical APRA ‘floor’ interest rate of 7.25% – regardless of how low actual market interest rates were,” he said.

“Recent reductions in interest rates mean that this restriction is unnecessarily onerous and APRA’s announcement today (July 5 2019) means that the interest rate floor has been scrapped. In future, borrowers will only need to have the capacity to absorb a 2.5% increase in mortgage interest rates from current, all-time lows,” Shane Garrett said.

“Regulatory restrictions on home lending were one of the factors which contributed to the current downturn in new home building activity across Australia,” he said.

“Combined with recent interest rate reductions and the successful passage last night (July 4 2019) of income tax cuts, the relaxation of APRA’s lending rules will add further fuel to a potential recovery in new home building following more than two years of decline,” Shane Garrett said.

Source: MBA