Hundreds of thousands could benefit, despite price inflation warning
The Finance Brokers Association of Australia (FBAA) has once again called for a reduction to the 3% serviceability buffer.
New research conducted by CoreData and published by the FBAA suggested that hundreds of thousands more Australians, including many aged 25 to 34, would be able to access mortgage finance if the buffer is reduced to 2.5%.
APRA has maintained the serviceability buffer at a flat 3% since October 2021, meaning borrowers must be able to prove they can service a loan three percentage points above their actual mortgage rate.
FBAA’s research suggests that approximately 270,000 additional people could qualify for median home loans, and nearly 400,000 first-time homebuyers aged 25 to 34 would benefit. Those using a 5% deposit would experience the largest increase in access to loans under $900,000.
FBAA’s managing director Peter White (pictured) called on both major political parties to commit to reducing the rate. Currently, the LNP opposition under Peter Dutton has confirmed its support for reducing the buffer.
“We’ve said for a very long time that this simple move would make a massive difference to the housing market because we are talking about people who can afford to service these loans,” said White.
A reduced buffer may also “ease loan stress among current mortgage holders… as more are freed up to refinance”, he added. “This will, as we have stated before, free mortgage prisoners who are locked into higher rates unable to refinance due to the serviceability rate.”
Mortgage brokers and other industry bodies, including the Mortgage and Finance Association of Australia (MFAA), have also called for the serviceability buffer to be reduced.
“There are significant barriers to entry for first home buyers. APRA’s mortgage serviceability buffer set at a fixed 3% is one of those barriers,” MFAA chief executive Anja Pannek recently said. “It lacks flexibility and scalability.”
House price warning
White acknowledged that the move could unintentionally drive up property values, therefore nullifying some of the advantages for first-home buyers.
He said: "Any initiative aimed at making housing more accessible has the potential to push property values higher due to supply and demand dynamics.
“However, the key takeaway is that this is a highly effective way to help hundreds of thousands of people enter and remain in the market.”
White also pointed out that economists generally believe the commitments from both sides of politics to boost the housing market are already expected to lead to price increases.
The FBAA had given the serviceability research to both the Labor government and LNP opposition.
“We’d also like to see the government of the day regularly review the buffer rate so it remains relevant, fit for purpose and suits the state of the economy at any given time,” White added.
