Last week, the Australian Prudential Regulation Authority (APRA) finalised its proposal to scrap the 7 per cent interest rate floor for home loan serviceability assessments, effective immediately.
Instead, ADIs will be permitted to review and set their own minimum interest rate floor for use in serviceability assessments and utilise a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.
APRA’s serviceability changes coincided with the passing of the federal government’s tax deductions for low and middle-income earners.
The Property Council of Australia has welcomed the reforms, stating it would provide a “welcome shot of confidence to the property sector”.
The CEO of the Property Council, Ken Morrison, said that APRA’s changes are “sensible” given the shift in market conditions since the measure was first introduced.
“This measure was put in place almost five years ago at the height of the residential price boom. As market conditions change, so should the regulatory guidance,” Mr Morrison said.
“Tighter credit for housing lending has impacted demand, which in turn has affected investment and jobs in the residential housing sector – one of the big drivers of the Australian economy.
“A competitive and well-functioning credit market, subject to prudent regulatory oversight, will help more Australians buy or invest in property, improving housing supply and affordability and support jobs and economic growth.”
Mr Morrison added that the Coalition government’s tax cuts would further provide “important stimulus to consumers and businesses”.
“[The] announcement by APRA and passage of the big personal income tax cuts add to the positive news for the property industry, which is good for jobs, investment and housing supply for our growing nation,” he concluded.
The Housing Industry Association (HIA) also welcomed the reforms, with managing director, Graham Wolfe, noting that they would improve housing affordability and ease the mortgage burden.
“The passing of the federal government’s income tax package means that millions of Australians will have extra income to put towards a deposit for a new home,” Mr Wolfe said.
“This is money that some Australians will be able to put to good use in the purchase of a new home.
“Home buyers in Sydney are already saving over $5,000 a year in lower mortgage repayments due to the correction in housing prices.”
Mr Wolfe also noted the benefits of back-to-back cuts to the cash rate from the Reserve Bank of Australia, which he said have reduced annual mortgage repayments by approximately $2,000.
He added: “This tax cut will add further to household income and provide a boost to the new home market.
“Whether the money goes towards a mortgage or a deposit on a house, it provides a real incentive for mums and dads to start looking at getting into their first home.”
Mr Wolfe concluded: “The stimulus that the cuts will provide to the economy will assist in slowing the downturn in the building industry, contributor to our national economy and to employment Australia-wide.”
[Related: APRA finalises mortgage lending reforms]