Most lenders move their floor rates
Australia’s biggest home-loan providers have adopted the proposals of the Australian Prudential Regulation Authority to ease serviceability rules for home loans.
ANZ and Westpac were the first to do so, changing their respective home-loan serviceability floor rate to 5.50% and 5.75%. Both, however, increased their buffer rates to 2.5%. With most lenders following suit.
Serviceability and buffer rates are used by banks to assess the capacity of borrowers to repay their home loans should interest rates begin to rise. Buffer rates are added to current mortgage rates — for instance, borrowers applying for a home loan with a 4.5% interest rate would be assessed to see if they can repay mortgage rates of up to 7%. If the variable rate plus the buffer rate is less than the floor rate, then the serviceability floor rate will be used as the assessment rate.
Experts believe that the changes to the lending rules would be a great stepping stone for home buyers looking to break into the market. Borrowers would now be able to borrow what they could afford, increasing their chances of getting approved.
The new assessment rates used by banks still have a significant buffer that will protect borrowers from future rate increases.
While this move could result in many home buyers getting that step closer to getting into the market – customers should still look to not to borrow more than they need and can afford. Remembering all banks have different calculations and your personal spending habits play a big part in how much you can borrow.
Rates are at historic lows right now but a home loan is for 30 years and rates will rise during this time.
Individual circumstances must always be considered, so if you would like some help in assessing your situation and determining your serviceability, contact me on 0418 903 954 or donna-lee@celsiusfinance.com.au
warm regards,
Donna-Lee Parkes
Credit Advisor
Celsius Finance