Bathurst Blog

Tuesday, the 2nd of July 2019 saw prospect home buyers a little closer to their Australian dream!

APRA's ease on lending guidelines and the RBA’s decision to cut interest rates to 1% is a major boost to housing affordability for new home buyers.

In December 2014, The Australian Prudential Regulation Authority (APRA) introduced residential lending standards with an interest rate floor of at least 7 per cent to limit excess borrowing in an environment of low interest rates and high household debt.

With recent demand for increased housing affordability, APRA removed its lending guidelines and permitted ADIs to review and set their own minimum interest rate floor for use in serviceability assessments, with a proposed interest rate buffer of 2.5%.

Unlike the cuts in 2015 and 2016 which stimulated the housing market through increased investor activity, this cut will stabilise the market with first home buyers benefitting the most.

Banks passing on the cuts in full means that for each $100k borrowed annual payments decrease by $500. For a first home buyer, who in the March quarter of 2019 had an average loan size of $338k this means a saving of $140 per month.

The big banks have passed on between 80 and 88 per cent of the two rounds of RBA rate cuts, with very little separating the 'big four' standard variable mortgage rates. NAB ranks the cheapest at 4.92pc and Westpac the most expensive at 4.98pc.

How does your Bank’s cut compare?

Source: RateCity, Note: the above calculations are based on a person with a $400,000, 30-year loan, on a discounted variable rate with one of the big four banks. Missed savings are calculated based on what a customer would have saved if the bank had passed on both rate cuts in full.

Sources:

https://www.apra.gov.au/media-centre/media-releases/apra-proposes-amending-guidance-mortgage-lending

file://rhsrv/Redirected%20Folders$/erinp/Desktop/Media-Release-2-July-2019-REIA-says-rate-cut-to-help-affordability-for-home-buyers.pdf

https://www.afr.com/business/banking-and-finance/apra-scraps-7pc-home-loan-buffer-20190521-p51phr

https://www.abc.net.au/news/2019-07-03/what-the-rate-cuts-mean-for-you/11273500

Photo by Tierra Mallorca, https://www.tierra-mallorca.com/