Average Aussie families can now borrow $60K more thanks to APRA changes

JULY 22, 2019

Prudential regulator APRA’s decision in July to remove the 7% floor on mortgage serviceability assessments will help underpin better conditions for borrowers and the property market, according to several financial experts.

Before July, APRA required lenders to check whether mortgage applicants had the finances to pay their loans at a possible future interest rate of at least 7%, said Tim Brown, Manager, Our Broker. Many lenders, including the big banks applied a minimum rate of 7.25%.

Now, lenders can establish their serviceability minimums independently provided they apply a 2.5% buffer required by APRA in addition to the current interest rate when reviewing a loan application.

For many Australians, the move is likely to improve their borrowing power significantly, according to research from Our Broker. A couple with two dependents on a combined income of $200,000 could borrow up to $100,000 more if their loan is assessed at 2.5% above the average variable rate of the Big Four Banks. It’s worth noting this calculation doesn’t consider the expenses, as these vary from borrower to borrower.

A first home buyer with no dependents would be able to borrow up to around $54,000 using the above scenario. While the removal of the floor increases people’s borrowing power, borrowers must be able to afford to repay the bigger loan.  Tim explained, “Regardless of the ceiling, lenders will still be considering the expenses of borrowers before approving bigger mortgages.

“This move is long overdue. It used to be a 2.5% buffer and then when interest rates fell below 5%, APRA settled on a 7.25% minimum floor. With some mortgages charging around 3%, the buffer has blown out to more than 4.25%.”

RateCity.com.au research director Sally Tindall said, “This change from APRA will increase people’s borrowing power overnight.

“Many Australians may suddenly find they can get their home loan approved; however, with more buyers in the market, house prices could also take-off again.”

To find out more about your borrowing power following changes to borrowing buffers, contact Our Broker on 1800 004 663.

Table 1: Impact of changes to interest rate buffer


Old calculation

New Calculations

First home buyer couple with 2 dependents and a combined salary of $150,000



Upgrader couple with 2 dependents and a combined salary of $200,000



First home buyer single with so dependents and a salary of $80,000



Upgrader couple with no dependents and a combined salary of $150,000



*Government has changed interest buffer from 7.25% to 2.5% above the average variable rate offered by the Big Four Banks

**Indicative calculation, based on no expenses added

Source: Our Broker