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.

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