How new lending rules could impact property purchases

Australia’s interest rates may still be at rock bottom but housing affordability concerns in capital cities like Melbourne keep growing.

The low cash rate target has driven a steady decline in standard mortgage rates and helped support a rise of 20.3 per cent in residential real estate values in the year to September.

National house prices have risen at their highest rate in more than 30 years, with Melbourne’s median price now more than $1.07 million dollars.

Noel Jones Director Brett Freeman said this strong annual appreciation is economically beneficial – but not if it starts to lock aspiring buyers out.

“Many first home buyers are finding it particularly hard to get a foot in the door,” Brett said.

“We know Melbourne’s real estate market has plenty of great offerings in different price ranges, so it’s crucial that we ensure there are always accessible entry points.”

Our skyrocketing property prices and concerns about the number of buyers overextending themselves have prompted financial regulator, the Australian Prudential Regulation Authority (APRA), to announce new lending restrictions for banks.

The new rules require lenders to increase the interest rate buffer on mortgage serviceability tests for borrowers from November 1.

It means households must be able to make their mortgage repayments if home loan interest rates rise three percentage points above their current rate, rather than the previous 2.5 percentage points.

APRA estimates the increase is likely to reduce the maximum borrowing capacity for most borrowers by around five per cent but says it will not impact mortgage interest rates.

“While banks have been told to prepare for the changes, every lender operates differently, so speak to your bank or mortgage broker to determine if you’ll be impacted,” Brett said.

“Support for responsible lending practices is a positive for the property industry.”

More potential positives for Victoria’s real estate market come in the form of government assistance programs, both federally and at a state level.

Buyers saving for a home can choose between the Victorian Homebuyer Fund, a shared equity scheme where buyers co-purchase with the state government, and the federal government’s First Home Loan Deposit Scheme, where the government goes guarantor for the loan.

Both allow for properties to be purchased with a deposit as low as five per cent, compared to the 20 per cent generally needed to avoid lenders’ mortgage insurance.

In the Victorian model, the government pays and owns up to 25 per cent of the Melbourne property, which must be valued at less than $950,000. The buyer takes out a mortgage for the remaining portion and must meet certain income thresholds.

The Commonwealth program allows for a mortgage of up to 95 per cent, with caps on purchase prices depending on the house’s location.

For guidance and support on your property journey, contact your local Noel Jones office.


More Posts

Blackburn Lake Sanctuary

The Best Trails and Walking Tracks in Melbourne’s Eastern Suburbs

Living in Melbourne’s Eastern suburbs, we are spoilt for choice when it comes to places to engage in physical activity, whilst enjoying mother nature and all she has to offer. Whether it’s bushwalks or cycling, there’s a variety of places you can choose from, and they’re all within a 45-minute drive of Melbourne’s CBD. In this article, the Noel Jones

About property rental rates

The Best Way to Calculate Property Rental Rates

When it comes to renting out your investment property, one of the most important decisions you’ll need to make is how much rent to charge. This can be a tricky process, as many factors go into determining an appropriate price for your rental unit. Set the bar too high and you might exclude your target market, resulting in a long

Market Update April 2022

The April property market had a lot to contend with. There were two consecutive long weekends, school holidays, an election campaign, and the speculation of rising interest rates, yet the market remained steady, and auction numbers exceeded any previously on record for the month of April. Melbourne’s outer east again recorded the second highest auction clearance rate of all regions,

2022 Federal Election’s Impact On Australia’s Property Market

Australia has had its first interest rate rise in more than a decade, just weeks out from the federal election. While this and further rate rises may generate uncertainty for homeowners and prospective buyers, there are some property market matters Australians can be sure of as we head to the polls on 21 May. The weeks leading up to an

Send Us A Message