Currently, the banks need to assess your ability to repay your loan based on an interest rate 3 per cent higher than you’d actually be paying. This is called the serviceability buffer and it is intended to protect buyers and the banks from approving a mortgage that you can’t afford.
But in an era of record high rates, and a likelihood of rate drops, there is pressure to review the buffer. The Coalition has said it will relax lending rules if it wins the election.
So what would that mean for buyers? An Oliver Hume analysis in realestate.com.au crunched these numbers:
- A drop of half a per cent in the serviceability buffer would make an extra 14 suburbs affordable for buying a house.
- A drop of 1 per cent would make 26 suburbs affordable.
- A drop of 2 per cent would make 75 suburbs affordable.
Here are a couple of examples.
“If the serviceability buffer was lowered to 2.5 per cent, homehunters in Eatons Hill and Pine Mountain could borrow an extra $35,000 towards buying a house, the research found,” reports realestate.com.au.
“Prospective buyers could borrow about $27,000 more to buy a house in Greenbank, Mango Hill, Narangba, and Jimboomba.”
So should you borrow to the hilt just because the bank says you can?
It depends on your personal circumstances and risk appetite. Some buyers like a buffer, while some like to get into the market however they can.
The important thing is to do your own research and seek independent financial advice.
Ready to make a move? View our current listings for sale or talk to us about selling.
