Throughout 2019, CFMG Capital continued to deliver commentary surrounding the artificial serviceability flaw relating to retail home lending and its impact on the property markets suggesting the various rate cuts were of no value to potential home buyers without the required regulatory change, but rather just a welcome ‘leg up’ for existing mortgage holders. It was welcome news in July 2019, when many major banks and second tier lenders dropped their assessment rates to ensure the rate cuts being handed out by the RBA has the desired impact.
Now just 12 months later, with several further rate cuts to a record low cash rate – the topic has reared its head again as scores of potential buyers who have no issue servicing a loan at the prescribed rates are being denied loans by banks due to artificial hurdles imposed by APRA and the lending industry. APRA responded to suggestions that further relaxations should be given that there is no evidence that credit was not flowing to where it is needed most. However, with rates expected to be subdued for an extended period of time, onlookers do wonder at the purpose of assessing a customers ability to repay a loan at more than double the current rates available.
APRA last relaxed the buffer from a hard floor of 7% in exchange for flat buffer of 250 basis points just 12 months ago, but with lenders now offering as low as 1.99% and under 2.5% widely available, the wisdom of assessing servicing ability at over 5% is understandably questioned by economists, politicians and other interested parties alike. With the $25,000 Home Builder grant designed specifically to stimulate the construction and housing industry expected to cost up to $700million, perhaps another simple form of stimulation for such an important economic sector would be a simple reduction in the rate serviceability buffer of just 50 basis points to allow genuine buyers into the market?