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It’s been a busy few weeks for the mortgage industry with a lot of changes for borrowers coming into effect. We’ve broken down the big changes in detail here.
What changes have been announced?
In the past two months, the long rumoured cash rate cuts courtesy of the Reserve Bank of Australia (RBA) finally transpired, now leaving the Australian cash rate resting at a historic low of 1.00%.
This interest rate drop of 50 basis points over the two cuts was primarily motivated by stagnant wage growth and the recent downturn in property values in a bid to help boost inflation.
There really is no downside with this change. Within days of the consecutive rate cut announcements, dozens of lenders passed on the cut (partially, or in full) to customers resulting in lower home loan repayments.
Many Aussies could save $1,200, or more, over the next 12 months. The recent 50 basis point reduction, if applied directly and in full, could save the average Australian mortgage holder with a $380,000 loan, an incremental $1,200* in interest per year. If your lender has not passed on this cut, it’s worth reviewing your options to see if there are savings to be made that can help put you in a financially stronger position.
Check out our list of which banks and lenders have already passed on the 0.50% RBA cash rate cut.
Previously, an individual’s borrowing power was assessed against their ability to repay a loan at a much higher interest rate. This month, APRA, the Australian Prudential Regulatory Authority, confirmed it will proceed with its plans to remove the 7 percent interest floor for mortgage serviceability assessments.
APRA originally introduced serviceability guidance in December 2014 as part of a package of measures designed to reinforce residential lending standards and limit the potential for mortgage stress.
For Aussie homebuyers, APRA’s lending reforms could boost your borrowing capacity and you’ll likely be able to borrow more funds to buy a home.
Previously, lenders needed to apply a ‘stress test’ on each home loan application, to see if borrowers could afford to repay a home loan with an interest rate of at least 7.00%, but more often closer to 7.25%.
APRA’s relaxation of these lending restrictions means lenders can now assess borrowing capacity on a lower rate, ultimately boosting borrowing power.
For a borrower on a rate of say 3.25%, the change would mean lenders could now assess their ability to repay their home loan at 5.75% (that’s 3.25% + 2.5%), instead of a minimum 7.00% or 7.25%.
So far, the major lenders who have revised their interest rate floor include:
Last updated Wednesday 31 July, 2019.
While it may be easier to qualify for a larger loan with a lower interest rate, you can still expect lenders to apply the same level of scrutiny to your income and expenses. Lenders now have a lot more data available to them to make decisions about the creditworthiness of borrowers.
Being able to borrow more funds doesn’t mean that you should do it. Yes, while these changes can increase your buying budget, it also means you are increasing your debt. The more you borrow, the more you increase your risk of mortgage stress defaulting in the future should your income decrease or the value of your property drop.
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*repayment rate based on a $380,000, P&I loan over a 20-year term decreasing from 4.25%/4.25% to 3.75%/3.75%.
^calculation based on an applicant in permanent employment (not on probation), with a 20% deposit and good credit rating.
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
The Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
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