Time To Scrap 7.25% Buffer

Posted on 14/05/2019  
Time To Scrap 7.25% Buffer

ANZ boss Shayne Elliott says it's time for a rethink of APRA's 7.25% home serviceability restriction rate.

The current measure that banks apply is the benchmark mortgage rate plus 2.25%, or 7.25%, whichever is higher. 

The Commonwealth Bank was the last of the big four to announce its heightened mortgage serviceability criteria in mid-2017. But the banks are now feeling the pinch from APRAs serviceability restrictions that say borrowers must be able to handle a 7.25% repayment interest rate.

The banks are campaigning for it be relaxed as it's crimping their earnings.

" I think common sense says it should be relative to where the interest rate cycle is," Elliott says. “The lower interest rates get the less likely it is that rates are going to get to 7.25% any time soon.

“At some point you need to rethink it … common sense says it should be relative to where the interest rate cycle is.”

Mortgage broker Louise Lucas says the 7.25% benchmark is “ridiculous” given that most borrowers are getting interest rates below 4%.

“There’s so much fat in the system it’s insane,” Lucas says. “If we thought interest rates were going to reach 7% in a hurry it might be reasonable but that’s not happening for a long, long time. Rates are trending lower, not higher, so the current buffer is unreasonable.”

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