The Australian Prudential Regulatory Authority (APRA) has proposed to relax the criteria for granting mortgages.
APRA proposed to remove its guidelines that licensed deposit-taking institutions (ADIs) should assess whether borrowers can meet their repayment obligations by using a minimum interest rate at least 7%. Instead, the ADIs would be allowed to review and define their own minimum interest rate floor for use in service readiness assessments.
APRA also anticipates that the ADI serviceability assessments will incorporate an interest rate buffer of 2.5%. APRA currently expects ADIs to assess loan servicing capacity using the highest of the interest rate thresholds of at least 7% or 2% of the loan interest rate. . APRA's guidance also indicates that a conservative ADI should use rates above these minimums. Most ADIs use 7.25% and 2.25% respectively.
"The proposed amendments will give ADIs greater flexibility in defining their own service floors, while maintaining some caution by applying an appropriate buffer that reflects the uncertainty inherent in credit assessments," said the President. from APRA, Wayne Byres.
APRA first introduced the standby guidelines in December 2014, in keeping with its commitment to strengthening healthy credit standards for residential credit. In particular, the floor and the interest rate cushion played an important role in limiting excessive borrowing in an environment characterized by low interest rates and high household debt. The guidelines were subsequently incorporated into the APG 223 Prudential Practice Guideline for Residential Mortgages, which APRA is now seeking to amend.
"The credit environment has changed a lot since then, and we have witnessed the reintroduction of differentiated mortgage pricing for homeowners, investors and borrowers with only interest," said Cameron Kusher. , analyst at CoreLogic. "Lenders have become much more focused on responsible lending requirements and, as a result, they are asking more detailed questions to borrowers about their financial situation and have abandoned the use of the HEM index."
According to Kusher, the differentiated pricing of mortgage loans and the decline in interest rates since the end of 2014 are the main factors that have made the reserve more than 7% inappropriate for the credit environment current.
The market is waiting for interest rates to fall. However, under the current policy, lower interest rates (and mortgage rates) would not necessarily allow new borrowers to obtain a mortgage. The reason? Those who could not claim a mortgage before would still not be able to qualify despite the lower rates.
"According to the proposed amendments, if we look at the same scenario as before, someone is looking to borrow at an interest rate of 3.9% .This borrower was previously valued according to his ability to pay off their mortgage at an interest rate of 7.25%; now they would be assessed on their ability to repay at a lower rate of 6.4%, "Kusher said. "The proposed changes in the APRA seem sensible given the interest rate environment, which is expected to fall and stay lower longer." In addition, since 2014, it has become much more difficult. To obtain a mortgage, partly because of this aptitude for service assessment. "
A recent update by ANZ to investors shows that three factors contributed to this decline in borrowing capacity: changes in long-term ownership (60%), minimum service rate set at 7.25% (30%) and the discount (10%) of income.
"While these changes are welcome and will help some borrowers who can not quite access
To take out a mortgage, it is unlikely that the housing market will recover, "said Kusher. It will be much more difficult than in the past to obtain a mortgage because of other areas of tightening. In addition, the 2.5% margin above the mortgage rate is above the 2% safety margin used before December 2014. "
In general, the planned amendments will ensure that more people can obtain a mortgage. In addition, these changes could also ease the urgency of the interest rate reduction by the Reserve Bank, according to Kusher. If housing can provide additional economic stimulus, rate cuts may be less necessary.
"If these changes were implemented, it would potentially slow down further declines and lead to an earlier slowdown in the housing market (we currently expect the market to be at a low point in mid-2020). he will stay longer. " It is difficult to obtain a mortgage than in the past and we would expect that if / when the market caps, a rapid re-inflation of the value of housing is unlikely, "he said.
The Australian Council of Property, meanwhile, has only acknowledged the positive impacts of the PLAR plan.
"It makes sense to revisit some of the measures initially put in place at the height of the housing market. Ken Morrison, Managing Director of the Property Council of Australia, said: "A stable and well-regulated financial system is essential to our economic prosperity and the lending standards guidelines should be regularly reviewed."
Morrison said the proposal was not meant to relax lending standards. It is rather a proof of recognition that the environment of interest rates has changed, interest rates now being at unprecedented levels. As a result, the gap between floor and real rates of 7% has become quite large.
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