Brighter Buying

Interest rates just jumped – but not how you expected

by Kate Watt, Marketing Manager 14 October 2021

As property prices have soared across Australia the banking regulator, APRA, has been watching very closely.

This month it made a move designed to ensure Aussies can afford their home loan repayments if and when interests rates rise.

APRA now recommends that banks increase their loan serviceability buffer from 2.5 per cent to 3 per cent, reports

What’s a serviceability buffer?

When a bank assesses you for a home loan they want to ensure you can make your repayments based on today’s interest rate plus a buffer that takes into account future interest rate rises. explains how it works:

“On a 1.99% home loan, a borrower would be assessed on their ability to repay the mortgage at an interest rate of 4.99% – the interest rate plus the new APRA buffer of 3.0%.”

In dollar terms….

“APRA’s change is expected to reduce the borrowing power of property buyers by around 5% – someone who could borrow $1 million under the old buffer could now only borrow about $950,000.”

So if you’re at the stage of budgeting to buy a home, best check with your bank or mortgage broker to find out how much you can borrow.

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