It seems like the gifts keep on coming for the property market since the election result, with APRA (The Australian Prudential Regulation Authority) now joining the party as they adjust some of their mortgage repayment test criteria for the first time since late 2014.
Introduced with a background of rising house prices in much of the country, banks were required to assess prospective borrowers on their ability to pay not just at current interest rates but at the higher of either 7% interest rates or with a buffer of 2% in place. While this might have assisted in keeping some buyers out of the market that shouldn’t have been in it, in a current environment of sustained sub 4% interest rates, it also meant restricting purchaser that might otherwise have been in a good position to repay. Purchasing power at 7% interest is obviously going to be a very different case than at 3.9%.
This has now changed, with a new benchmark of a 2.5% buffer introduced, which brings that assessment more commonly down to 6.5%, increasing potential borrowing power accordingly. While that might not seem like a huge difference, in dollar terms it could mean tens of thousands of dollars and the difference between being able to purchase a 3 bedroom home or a 4 bedroom one, or even being able to afford suburbs that might not otherwise have fit the budget. With some flagging a potential rate cut in the coming months, this new assessment will be even more welcome as it moves with rates rather than maintaining a widening differential.
As a buyer (or potential buyer) in our current Cairns market, what does this mean for you? Well to start with, it should mean a visit or call to your mortgage broker of choice, to talk about how this might have impacted you and your own circumstances. Many people might be happy to maintain their current budget as a precaution, while for others necessity or living arrangements might have a greater need of that increased borrowing power. If you are a first home buyer, that conversation should also include discussion of the government’s new deposit guarantee for first home buyers and how you can put yourself in a position to take advantage of it while it lasts.
It’s a new market this side of the election, with new opportunities. Here’s to making the most of them.