PHOTO: Home buyers will not be able to borrow quite as much under a new lending clampdown. Photo: Jellis Craig Stonnington
Rapid house price growth is set to slow after the bank regulator reduced the maximum amount that home buyers can borrow.
Banks will now have to assess whether potential borrowers could meet their loan repayments if interest rates rose at least 3 percentage points above their mortgage rate.
Previously, this buffer was set at 2.5 percentage points.
This will reduce maximum borrowing capacity for the typical borrower by about 5 per cent, according to an announcement on Wednesday by bank regulator the Australian Prudential Regulation Authority (APRA). As many home buyers do not borrow at their maximum capacity, APRA expects a modest impact on housing credit growth.
APRA chair Wayne Byres said the regulator was focused on making sure banks were lending to borrowers who could afford the debt they were taking on, now and in the future.
Economists expect the move to reduce the pace of property price growth, which has been soaring this year on the back of ultra-low interest rates and extra cash saved by locked-down workers who cannot spend on restaurant meals or overseas holidays. National home values rose more than 20 per cent over the past 12 months, on CoreLogic data.
The modest move is not likely to push property prices lower at this stage. However, the regulator may make more changes if needed.
Some banks have already been assessing whether borrowers could repay loans if interest rates rose even higher, with Commonwealth Bank lifting its serviceability floor from 5.1 per cent to 5.25 per cent in June.
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