APRA holds firm on 3% serviceability buffer amid borrower challenges
- Yuan Gao
- Nov 29, 2024
- 1 min read
APRA Keeps 3% Serviceability Buffer for Home Loans
APRA, the regulator for Australia’s banking system, has confirmed that the 3% serviceability buffer for home loans will remain in place. This means borrowers need to show they can afford repayments at 3% above their loan’s interest rate, adding extra challenges in today’s tough financial climate.
What This Means for Borrowers
Finance expert Rachel Wastell compares it to “being asked to budget for a major home renovation when all you need is a simple repaint.”
For homebuyers in VIC, this buffer could mean proving they can pay up to $2,000 more per month, based on median property prices. Even with the cash rate now at 4.35%, the buffer assumes repayments at 7.35% — a rate not seen since the 1990s.
While a further 3% rate hike is unlikely in the near future, borrowers would have reduced their loan balances significantly by the time rates reached that level.
Why APRA is Holding Firm
According to APRA chair John Lonsdale, the buffer protects borrowers and the banking system from unexpected economic shocks, such as job losses or global instability.
“It’s about making sure borrowers can weather the unexpected,” Lonsdale explained.
Tips for Borrowers
If you’re looking to refinance or apply for a loan, focusing on a lower interest rate can make a big difference.
“Finding a better rate can mean the difference between managing your repayments comfortably and feeling the strain,” Wastell said.
As rates and living costs remain high, it’s important to plan ahead and explore options to stay on top of your mortgage.
