An average borrower may be able to take out an extra $40,000 for their home loan if the Coalition wins the upcoming federal election.
Opposition housing spokesperson Michael Sukkar said on Tuesday the Coalition would reform the Australian Prudential Regulation Authority (APRA) if elected, so that it must consider the impact of its rules on access to housing.
Sukkar said this included reducing the “overly cautious” serviceability buffer to increase a buyer’s borrowing power if elected.
Currently APRA requires banks to consider the capacity of a borrower to pay back their loan if interest rates rise by 3 per cent.
This buffer was raised to 3 per cent during the COVID-19 pandemic when the official cash rate was at an all-time low of 0.1 per cent.
Sukkar said reducing the buffer could result in thousands more first home buyers securing mortgages.
Financial comparison site Canstar has calculated that someone on an average full-time salary of $103,024 per year could borrow $40,000 more if the buffer was reduced to 2 per cent (instead of the current 3 per cent), on a 30-year-loan with a 6 per cent interest rate.
But it’s unclear how much the serviceability buffer would drop by even if the Coalition was elected. Opposition leader Peter Dutton acknowledged: “ultimately it is a decision for APRA”.
“But our position is to make sure that you can get into housing as quickly as possible”.
Sukkar also flagged changes to lenders mortgage insurance (LMI) so that buyers whose parents are unable or unwilling to guarantee their loans are not disadvantaged.
LMI is usually required to be paid if a buyer can’t raise a 20 per cent deposit for a loan.
“We don’t think they should be paying higher interest rates,” Sukkar said.
Are there any downsides to changing the serviceability buffer?
Mardy Chiah, associate professor of finance at the University of Newcastle, said reducing the serviceability buffer could increase borrowing power but warned it could also increase house prices.
“The increased borrowing capacity may fuel housing demand, which potentially increases house prices further — offsetting the benefit of increased borrowing capacity,” Chiah said.
Potential changes to LMI would also enable buyers to borrow more money.
But Sukkar said would like to see the buffer changed to be more responsive to market pressures and interest rates.
“It has to be a buffer that ultimately adjusts with the market,” he said.
“No bank is incentivised to lend to someone who can’t repay them.”
The change has also been backed by the Property Council of Australia.
“Sadly, it has never been harder for first-home buyers in this country,” chief executive Mike Zorbas said.
“APRA should factor in first-time buyers when shaping regulations with an eye to boosting homeownership, maintaining balance and flexibility to adapt to changing conditions.”
‘Hard to work out’, Albanese says
Commenting on the Coalition’s plan, Prime Minister Anthony Albanese said it was “hard” to work out exactly what it was promising first home buyers, while highlighting his own policy for young house seekers.
“One of the things that we have done is to ensure that banks won’t take into account people’s HECS debt which is really important,” he told reporters on Tuesday morning.
Albanese said students would also be provided with a further 20 per cent discount off their higher education debt, on top of the $3 billion the government had reduced HECS debt by [through] changing the indexation arrangements.
“We’ll [also] give every young person a tax cut.”
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