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Recent changes to how lenders have to assess borrowing capacity for home loans will make it harder for some to borrow what they want.

We’ve broken down what the changes are and what they could mean for you.

What’s changed?

On 6 October the Australian Prudential Regulation Authority (APRA) announced that lenders need to assess borrowers’ ability to meet their loan repayment at an interest rate that is at least 3.0 percentage points above the loan product rate, compared to the 2.5 percentage points it is now.

This comes into effect from the end of October.

Why has it changed?

The change was in response to concern about soaring property prices, continuing record low-interest rates that can only go north eventually, and an increasing number of Australians borrowing more, in reaction to the first two factors.

What does it mean for you?

Have pre-approval
If you already have pre-approval for a loan, it could mean you will need that reassessed. It could possibly mean that you will need to apply for a smaller loan.

Investors
The amount you can borrow (in some cases) will be assessed based on all your debt so this could impact future borrowing capacity.

It is expected that depending on the lender and your financial position this could reduce your borrowing capacity between 5% – 10%, so may in fact just have more of a psychological effect.

Note that we have lenders that are not governed by APRA where benchmark rates are not going up, so these can now be considered too if required.

As you consider your property goals for 2022, you will need to bear the above in mind, so please get in touch with us so we can help:

  • assess your borrowing capacity under the new conditions
  • discuss the impact of the changes on your ability to borrow for investment
  • discuss property plans and how we can work together to help you get there.