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30 Ways To Pay OffIn recent news, a significant development in APRA’s policy is poised to have a considerable impact on the borrowing power of potential home loan applicants. This change, proposed by Peter Dutton, aims to revise the serviceability buffer utilized by banks during the assessment of home loan requests.
Historically, the serviceability buffer stood at 2.5%, but during the COVID period, it was raised to 3% to safeguard borrowers against potential risks associated with rising interest rates. However, with the recent rate cuts signaling the end of the RBA’s tightening cycle, maintaining the buffer at 3% has become a point of contention. The rigidity of this buffer has hindered aspiring home buyers from entering the market and has even posed obstacles for existing borrowers seeking better loan terms.
The proposed reduction of the buffer, possibly to 2.5%, 2%, or even 1%, could substantially enhance borrowing power. For instance, Canstar’s analysis indicates that reverting to a 2.5% buffer could allow an individual earning the average wage to borrow an extra $20,000, with even greater benefits expected from a further reduction. This adjustment could potentially provide a financial boost equivalent to multiple interest rate cuts by the RBA, enabling more Australians to fulfill their dream of homeownership.
While the reduction of the buffer appears promising in terms of expanding borrowing capacity, experts like Sally Tindall from Canstar emphasize the critical need for increased housing supply to address the underlying issue of housing affordability. The surge in borrowing power resulting from this policy change may inadvertently drive up property prices, ultimately benefiting sellers more than buyers. Tindall underscores the importance of focusing on bolstering housing supply to achieve a sustainable solution to the housing market’s challenges.
In conclusion, the proposed revision to APRA’s serviceability buffer has the potential to empower prospective home buyers by enhancing their borrowing capabilities. However, the broader issue of housing affordability necessitates a multifaceted approach that not only addresses borrowing power but also emphasizes the vital role of increasing housing supply to ensure a balanced and sustainable real estate market.
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