BANKS SET TO INCREASE LENDING - ALLOWING CUSTOMERS MORE BORROWING POWER

In a move to scrap a key mortgage rule, APRA has created the ability for banks to offer – in some cases - tens of thousands extra dollars to those taking on a new loan. The move could be just around the corner with a new proposal from the banking regulator to lessen restrictions imposed on lenders during the heat of the property boom.

The property sector and lenders alike welcomed the move after the Australian Prudential Regulation Authority (APRA) proposed the scrapping of the rule on Tuesday. Banks were previously required to test prospective borrowers the higher of either a 2 per cent "buffer" over the loan's actual interest rate or an interest rate of 7 per cent.

According to Inception Finance analysis this could mean a couple with two children and a household income of $150,000 a year, the maximum lend available to them could increase the by $67,000, up to $903,000 using an assessment rate of 6.5 per cent, instead of 7.25 per cent currently

The change, driven by the Reserve Bank signalling it’s potential intention to cut to the current 1.5% official rate in two weeks time, will leave Owner-Occupier borrowers with the biggest advantage. CoreLogic’s Cameron Kusher welcoming the move which he believes will both aid customers in getting a mortgage and slow the rate in decline of house prices.

The move saw Westpac, ANZ Bank and Commonwealth Bank all enjoying an increase of more than 2% in their share price on Monday in response to the decision while National Australia Bank shares rose by 1.5%. The new proposal will allow banks to set their own minimum assessment rates, Wayne Byres of APRA explained the decision:

“with interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so”