Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
SUBSCRIBE TO OUR NEWSLETTER SIGN UP
Powered by MOMENTUM MEDIA

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

Regulators downplay impact of lower floor rates

apra

apra
Charbel Kadib 3 minute read

APRA’s serviceability changes have only had a “small” impact on residential mortgage growth, with most borrowers choosing not to exhaust their borrowing capacity, according to Australias financial regulators.

The Council of Financial Regulators (CFR) has released its latest Financial Stability Review, in which it assesses risks in the domestic and international markets.

The CFR – which consists of the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and Treasury – noted APRA’s decision in July to scrap its 7 per cent interest rate floor for mortgage serviceability assessments.

The regulators noted that the new guidance was introduced to align with a “prolonged period of record low interest rates”, and acknowledged that the “net effect” of the changes has been to “increase the maximum loan size available to most prospective borrowers”.

Several analysts have observed that the changes would help stimulate demand for credit and contribute to a recovery in the housing market by boosting borrowing capacity by up to 23 per cent.  

However, the CFR said that it expects APRA’s new guidance to have a minimal impact on credit growth, claiming that most borrowers don’t exhaust their borrowing capacity.   

“For loans with relatively low interest rates such as principal and interest loans to owner-occupiers, maximum loan sizes have increased by more than for loans with higher interest rates such as interest-only loans to investors,” the CFR stated.

“In practice, however, only a small share of borrowers take out loans that are close to the maximum available to them, suggesting the overall impact on credit growth is small.”

Advertisement
Advertisement

The CFR’s sentiment is shared by CEO of the Commonwealth Bank of Australia (CBA) Matt Comyn.

“We’re seeing, and we would expect to see, a rather modest effect from [the APRA revision],” he said in August.

“As we’ve previously disclosed, almost 90 per cent of borrowers don’t borrow at the maximum, so the application of where the floor [is set] impacts someone who wants to borrow at the maximum.

“As you’d expect, across multiple different borrower types and circumstances, it depends on what the benefit will be from the floor. For example, if you’re an owner-occupied, principal and interest borrower, [the changes would] potentially have the greatest effect.”

Mr Comyn largely attributed the recently reported recovery in credit and housing market conditions to a general improvement in market sentiment.

PROMOTED FEATURES


“I think the stabilisation in house prices and the slight improvement in credit growth is probably due to a broader [improvement in sentiment] rather than the APRA changes,” he added.

[Related: Macquarie outperforms majors in mortgage market]

Regulators downplay impact of lower floor rates
apra
TheAdviser logo
apra
Charbel Kadib

Charbel Kadib

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

more from the adviser
parliament Responsible lending laws to be scrapped

The federal government has revealed that it will move to overhaul...

Plenti team ta Plenti lists on the ASX

The non-bank lender has commenced trading on the ASX after succes...

fight boxing gloves Brokers maintain low level of AFCA complaints

Over 7,000 complaints relating to home loans were lodged with AFC...

FROM THE WEB