With the current bull market and the ongoing pandemic, The Australian Prudential Regulation Authority (APRA) announced that all Australian Deposit Institutions (ADI’s) should be operating with a serviceability assessment of at least three percentage points over the loan interest rate. This strategy taken by APRA serves as a contingency plan against unexpected changes on the borrower’s income or expenses.
Needless to say, the right assessment of a borrower’s capability to service and repay a loan is fundamental to sound credit risk management. This increase in the serviceability buffer will gradually reduce the maximum borrowing capacity for a typical borrower by five percent.
Is this a good decision made by APRA? Increasing the assessment rate will not increase your existing loan but will affect the maximum amount that you can borrow. For instance, a mortgage loan. For banks, it will help them lower the delinquency rate especially with housing loans which are now stirring up the economy again due to the lockdown being lifted.
Did this news saddened you? Yes for some, whilst others just shrugged their shoulders. But for us, we would like to take this opportunity to remind you that each lender in the industry has their own servicing criteria. Thus, you may be able to borrow more from one lender than the other. What’s important is that you get to have an experienced broker ready to help you. Not only to tailor-fit your needs, but to help you get the most of what you can borrow.