HAPPY TIMES AHEAD FOR HOME BUYERS

Reserve Bank Governor Philip Lowe has plans to slash the cash rate to 1.25 per cent in a fortnight’s time, with all signs pointing to another cut to just 1 per cent by Christmas.

And those good news cuts are just the beginning. Banks may soon be able to lend more money…….

Until now, Banks had to ensure that borrowers could cope with at least a 7 per cent interest rate on their mortgage.

The Australian Prudential Regulation Authority proposed on Tuesday that banks should change the way they assess customers’ ability to meet their mortgage repayments in a move that would let people borrow more.

APRA stated:

The low interest rate environment is now expected to persist for longer than originally envisaged. This may mean that the gap between actual rates paid and the floor rate may become unnecessarily wide.

The new arrangements will allow banks to assess borrowers on their ability to make payments on a 6 per cent to 7 per cent loan instead of a 7.25 per cent loan.

If the two cash rate cuts by Christmas are passed on, it would allow banks to assess lenders on their ability to repay a 5.5 per cent to 6.5 per cent loan, a considerable alleviation of requirements for new borrowers. A Rate City analysis shows a family on an average household income of $109,688 would be able to borrow up to around $60,000 more if their loan was assessed at 6.25 per cent instead of 7.25%, and across the board that could be enough to have an appreciable positive effect on the housing market.

With the easing of lending requirements and a drop in interest rates, it could well be happy times ahead for home buyers, and a positive spring property market.

For further reading:

 https://www.abc.net.au/news/2019-05-22/apra-reserve-bank-interest-rate-changes-mortgage-rates/11137338

By Jennie Duggan