APRA Lending rule changes

APRA announces tighter lending rules – how will this affect you?

On October 6th, APRA (The Australian Prudential Regulation Authority) announced a tightening of the rules in lending expected to come into play at the end of October 2021.

What does this mean? Let’s break it down.

How banks assess your ability to borrow

When you apply for a loan the bank does not assess your ability to borrow based on what the current interest rate is eg whether its 1.99% or 5%.  They use a serviceability buffer which is currently about 2.25-2.5% above the rate you qualify for.

APRA’s recommendation to the banks is that this serviceability buffer should be increased to 3% ie more than 0.5% more than what it currently is. This will impact on a person’s ability to borrow quite significantly in most cases. Imagine the RBA increasing the cash rate by 0.5%!  (To put this into context the last time this happened was back in Feb 2000).

It’s not all doom and gloom though. It wasn’t that long ago that the buffer rate was 5.5% and ING was using 8%.

It would appear that it is hoped that the increase in the serviceability buffer will be an anchor out the back of the boat to try and pull up the runaway train that is the current hot housing market.

How does this change affect your lending options?

If you will be applying for finance or refinancing, strategies to give you the best chance of a successful loan application for the amount you want will include:

Reducing all unnecessary debt

Credit cards and personal loans can be a killer to your ability to borrow especially now that credit card debt must be assessed at its limit not simply the current balance and that the debt must be able to be repaid within 2 years.

Consolidating your debt and/or re-structuring

Everalls Finance can help organise consolidation of your debt; and we can restructure your debt to ensure the maximum tax deductibility of investment or business loans and that your owner-occupied home loan is paid off as fast as possible!

In saying all of this, the banks are still very slow-going processing applications, and we don’t imagine that this will get faster any time soon. They want more and more documentation and there are very few banks agile enough to get things processed quickly.

Our team is here to help make this a smoother, faster process and save you time and stress by dealing with the lenders and their criteria for you. Get in contact with the Everalls Finance team today to understand what this may mean for you.

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