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Interest rates down, borrowing capacity up: So what does this actually mean for you?

The Australian Prudential Regulation Authority (APRA) has officially relaxed its regulations which will now make it easier for Australian’s to borrow money for their new home.

The change means that banks no longer need to apply an interest rate “stress test” based on calculations of at least 7%. The new rules allow the banks to set their own serviceability buffers (as long as borrowers can repay their loans if interest rates were at least a 2.5% higher from the current rate).

APRA’s chairman, Wayne Byers thought the 7% buffer was “higher than necessary”, and therefore supported the decision to relax the standards.

How much extra can people borrow?

With record low interest rates, APRA’s changes allow people to borrow a lot more!

In simple terms, certain borrowers can now take out a home loan 14% bigger than they could last month.

RateCity, give a comparison example below:

A family, earning a household income of $109,688, would be able to borrow up to $60,000 more, if their loan was assessed at 6.25 per cent instead of 7.25 per cent. And A single person in the same scenario, may be able to borrow an extra $50,000.

However, the increased borrowing capacity could be much more based on the serviceability criteria that your bank chooses to adopt.

What to do next?

I recommend for potential buyers to contact their lenders to find out their new borrowing capacity and reevaluate all options.

For existing home owners, I recommend getting in touch with your lender as well to see if you can now release equity or roll over interest only facilities.

Under these new rules, more options may be on the table, but it is important to consider your personal limits and borrow responsibly.

If you would like to discuss this further, please come in to the sales office - 5 Nagle Drive, Point Cook.

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