Australian borrowers will soon have a tougher time getting a new home loan with the banking regulator announcing new rules to tackle the surge in debt levels.
National character prices in September soared by 20.3 per cent – the fastest annual speed since 1989.
The Australian Prudential Regulation Authority, the banking regulator, on Wednesday announced stricter new lending rules, with typical homes already outside Sydney and Melbourne unaffordable for ordinary borrowers.
Under the new rules, the edges will have to form how a borrower would cope with mortgage rates climbing by three percentage points.
Australian borrowers will soon have a tougher time getting a new home loan with the banking regulator announcing new rules to tackle the surge in debt levels
Australian house prices surges
SYDNEY: Up 28.9 per cent to $1,311,641
MELBOURNE: Up 18 per cent to $962,250
BRISBANE: Up 22.2 per cent to $709,136
ADELAIDE: Up 21.4 per cent to $575,949
PERTH: Up 18.5 per cent to $548,351
HOBART: Up 25.8 per cent to $704,321
DARWIN: Up 18.5 per cent to $563,357
CANBERRA: Up 28 per cent to $956,119
Source: CoreLogic Home Value Index median house price data annual increases in September 2021
The big edges are now offering fixed mortgage rates of 2 per cent and the save Bank of Australia has vowed to keep the cash rate at a record low of 0.1 per cent until 2024.
Australians on an average, complete-time salary of $90,329 would now have a debt-to-income ratio of six just to buy a median-priced $674,848 home with a 20 per cent place factored in, CoreLogic data shows.
Someone earning that salary buying a typical Australian home, with a 2.19 per cent three-year fixed mortgage from the Commonwealth Bank, would now be paying $2,048 a month in mortgage repayments to service a $539,879 debt.
Under the APRA changes, the edges would have to form how this borrower would cope with the mortgage rate going up to 5.19 per cent, which would see their monthly repayments climb to $2,962 or by an additional $914 a month.
APRA considers someone with a debt-to-income ratio of six or more to be mortgage stress where a borrower would struggle to meet their mortgage obligations every month after the bills and living costs are factored in.
The banking regulator’s chairman Wayne Byres said the new rules were needed so borrowers weren’t taking on debt they could not provide.
‘In taking action, APRA is focused on ensuring the financial system remains safe, and that edges are lending to borrowers who can provide the level of debt they are taking on – both today and into the future,’ he said.
An APRA crackdown on lending rules has before caused a real estate downturn.
During the last consistent downturn before the pandemic, Sydney character values fell by 15.3 per cent between July 2017 and May 2019 after the banking regulator introduced tighter rules on investor and interest-only loans.
Should that happen again, Sydney’s median house price of $1.312million would fall by $200,682 to $1.1million.
Source: Daily Mail
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