The biggest change in finance we've seen in three years
TWO WEEKS AGO THE REGULATOR OF THE FINANCE INDUSTRY (APRA) RECOMMENDED CHANGES TO THE CURRENT WAY IN WHICH LENDERS ASSESS SERVICEABILITY (YOU’RE ABILITY TO PAY DOWN A LOAN). FOR OUR LITTLE INDUSTRY, IT’S BIG NEWS AND ONE THAT IN MY OPINION COULD BE BIG ENOUGH TO SPARK PROPERTY MARKETS OR AT THE VERY LEAST, ALLOW US TO REACH A TRUE BOTTOM OF THE MARKET.
RECAPPING, THE CURRENT SYSTEM IN PLACE IS THAT LENDERS MUST PRESUME INTEREST RATES ARE AT LEAST 7.25% AND BORROWERS INCOME NEEDS TO BE HIGH ENOUGH TO BE ABLE TO COMFORTABLY SERVICE THE HOME LOAN REPAYMENTS AFTER ALL OTHER LIABILITIES AND LIVING EXPENSES HAVE BEEN CONSIDERED.
What APRA have proposed is that instead lenders adopt a 2.5% buffer above whatever the interest rate you’re applying for is. Essentially bringing back the pre-APRA way the banks used to do it.
The proposals by APRA have been submitted and there’s a four-week consultation period with all the banks that ends 18th June. From there a final version will be completed and most expect these changes to come into effect from 1st July.
I think this is a great move by the regulator as they’ve finally acknowledged that we’re now in a long phase, low interest rate environment. Interest rates are years away (if at all) of reaching the pre GFC historical average of 6-7% so it makes sense that a new servicing model be brought in to reflect the current market.
For me personally, I couldn’t tell you the amount of people I’ve had to turn away over the past two year due to serviceability issues.
This week I’ve been mucking around with bank servicing calculators to see what difference these changes will make and in my opinion, I reckon it will improve things by about 20-30%.
To give you a deeper understanding of what these changes are going to look like, take a look at the video below where I’ll show you a live application I’ve got and how much of a difference these changes are going to make.
So if you’ve been looking at purchasing a property over the past 12 months and have had servicing issues, get in contact with us today and we’re more than happy to re-run your numbers for you under the proposed new changes.
I think you’ll find you’ll be pleasantly surprised with the results!