The minimum 7 per cent assessment rate for mortgages is now to be lifted.
Via APRA:
Source: APRA
It's interesting to consider how a new assessment rate for mortgages might impact lending.
A simple but stylised graphic below shows that currently mortgages written under 4¾ per cent could be treated a bit more favourably under the proposed 250 basis points buffer.
Following market pricing for the cash rate - and assuming any further easing is broadly passed on by lenders - then the impact would be felt more meaningfully again.
This makes good sense, and appears likely to keep a lid on interest-only lending to investors (typically written at higher rates), while favouring homebuyers.
It's good to see a dynamic and pragmatic move which is effective immediately.
An interesting addendum: were interest rates to increase again in the future then a buffer of 250 basis points would constrain borrowing capacity.
An interesting addendum: were interest rates to increase again in the future then a buffer of 250 basis points would constrain borrowing capacity.
