Banking regulator in Australia announces no ease of lending rules

Banking regulator in Australia announces no ease of lending rules

The banking regulator in Australia has announced that it will not ease lending rules, making it harder for Australians to obtain home loans or refinance existing ones. The stricter rules come at a time when the Reserve Bank is expected to increase interest rates further to tackle the worst inflation in 32 years. The Australian Prudential Regulation Authority has reaffirmed that banks will be required to assess a borrower’s ability to cope with a three percentage point increase in variable mortgage rates. The increased mortgage buffer means that an individual earning an average salary of $94,000 can now only borrow $436,000, a $21,000 difference from the previous lending rules.

Canstar’s editor-at-large, Effie Zahos, believes the stricter mortgage buffer is becoming less necessary, and it’s time for the rules to change. She argued that the current rules are making it harder for existing borrowers to refinance their loans, which is ironic as the regulations were designed to protect consumers. Meanwhile, Westpac, ANZ, and NAB are predicting that the Reserve Bank will raise interest rates in March, April, and May, with the Commonwealth Bank forecasting a 3.85 per cent cash rate.

In May 2022, the Reserve Bank raised the cash rate nine times to a 10-year high of 3.35 per cent. This rate hike is the most severe pace of monetary policy tightening since the Reserve Bank first published a target cash rate in 1990. Australians who took out a fixed-rate loan in May 2021 at 1.92 per cent will face abruptly moving to a ‘revert’ variable rate of 7.43 per cent in 2023, leading to a 69 per cent surge in monthly repayments unless they refinance. Moody’s Investors Service has defended the banking regulator’s strict rules, arguing they are necessary because rising interest rates, high cost of living pressures, and the slowing economy will weigh on borrowers’ capacities to repay debt.


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