APRA rules will change at the start of next week, with brokers across the country scrambling to get borderline deals over the line before the stricter lending conditions kick in.
The change in APRA regulations have left many at the margins of the home loan market in a unique position where they can get funding this week but not next. This key market segment is vulnerable to what is known as the ‘mortgage belt’, and look likely to be excluded by the tightening.
“The best way to think about the mortgage belt is like the belt on your trousers,” explains Dr Diaswati Mardiasmo, National Research Director at PRDnationwide. “You can tighten it or loosen it.”
“That translates to the amount of lending that banks can approve. At the moment, with APRA increasing the serviceability assessment levels, the banks are feeling that they have limited time before they have to tighten and only a certain amount of people will pass the serviceability assessment test.”
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The mortgage belt tightening will target those one the borderline of getting a home loan in the first place, and thus also those at biggest risk of default.
“At the moment, there’s several categories of people who are applying,” said Dr Mardiasmo. “The ones who will not be able to pass the test with as little as an extra 0.5% being added to serviceability are usually first home buyers who had a heavy reliance on government grants to be able to put together their deposit and get a home loan. They’re using all their available grants to get something.”
“Those are the ones that we would be worried about, because technically you should be able to service your loans without any of those grants in the first place. Banks assess at a higher rate and, if just that slight increase means that you can no longer access finance, it means that you would have been struggling if anything happened to the interest rates.”
“We’re in a historically low interest rate environment, and if any of that increased, you’d be at risk of not being able to service the mortgage and have the possibility of foreclosure or sell up. It will have a heavy impact on your ability to live.”
“In a way, it does limit those who would be at risk, and that’s what we’ve been worried about. The proportion of family income that goes on servicing mortgages is at very high levels at the moment and with low wage growth across Australia, that’s a worry.”
“If we talk about whether the people who get a loan this week before the changes come in should be getting a loan, the straight answer is no, because at the end of the day, these measures are coming in to assist people as a contingency plan to avoid them getting into dire situations and not being able to meet payments.”
