APRA recently announced its intention to have lenders remove the 7.25% floor they use for servicing calculations. In a letter to the lenders, APRA state that they plan to remove the servicing floor and allowing lenders to assess on actual repayments plus a buffer, which will allow many people to borrow more. This will loosen the the tightening credit situation in Australia.
What does it really mean?
If you have recently been knocked back on a loan because you were unable to service the loan amount then there is a chance that you will be able to qualify for a loan once this comes into effect. Loans are currently assessed at around 7.25%, meaning that the lender will assess your ability to repay the loan should rates go up to 7.25%. This will be moving to the actual rate +2.5%, so if your home loan rate is around 3.6% then the new assessment rate will be approximately 6.1%. The new assessment rates will have a big impact on borrowing capacity.
The catch is that it is not finalised yet. APRA have given the banks time to comment before they push out the new policy. Once the policy is out, it is then up to the lenders if they want to adopt the lower assessment rate. Given the competition in the market, it is expected that most lenders will move to the new scheme as quickly as their systems will allow for change. This is likely to be as early as July 2019.
One thing to note is that it won't help you with your deposit. If you were unable to get a loan because of a lack of deposit then, unfortunately, you need to keep saving.
Contact us and let's see what might be possible under the new system.