After the Federal Election, the Australian Prudential Regulation Authority removed a major constraint on borrowing limits allowing real estate buyers to borrow more.
Added to this, buyers’ borrowing capacity has been boosted by further reductions to the official interest rate, which has translated into lower mortgage rates.
Realmark Group Managing Director John Percudani said this had created one of the most positive borrowing environments for property buyers in decades, and this comes at an ideal time in the WA market
“As a result of APRA’s decision to relax the lending rules, a customer's borrowing capacity could increase by 10 per cent or more,” he said.
APRA scrapped a rule, introduced in late 2014, which had meant new mortgage customers were assessed on their ability to manage repayments with a 7.25 per cent interest rate.
APRA now requires banks to test if customers could manage repayments with rates at least 2.5 percentage points above a loan's current rate.
With many mortgages currently attracting interest rates of about 3.5 per cent, the change means banks will need to test whether borrowers can afford their loan at a rate of about 6 per cent, instead of 7.25 per cent.
Some comparison rate websites suggest that for a family of four with a household income of $110,000 these changes would see their borrowing capacity rise by around $77,000. This would lift the maximum loan available for this “hypothetical household” to $636,000.
Households on an income of $200,000 a year could boost their loans by an extra $150,000 to $1.25 million based on gaining a leading market interest rate.
“This increase could allow buyers in the middle to upper ends of the market to now look at buying in suburbs or different types of property they previously hadn’t been able to,” Mr Percudani said.
“Increased borrowing capacity should ultimately entice more buyers into the marketplace which will have a positive knock-on effect throughout all price levels of the property market.”
Looking for your next move, visit Realmark.com.au