APRA leaves serviceability buffer unchanged

The Australian Prudential and Regulation Authority (ARPA) has announced it will leave the mortgage serviceability buffer unchanged at 3 per cent due, deeming it to be appropriate due to “continued uncertainty in the outlook for the labour market, inflation and interest rates”.

According to APRA, while the sources of economic uncertainty have shifted over the last 12 months, the risk of shocks for borrowers still persist despite the risk of stubbornly high inflation and further cash rate hikes in the near-term being reduced.

Additionally, APRA stated that higher unemployment and “some persistence in cost-of-living pressures” are expected, further posing threats to household incomes.

APRA chair John Lonsdale stated: “Since APRA’s last announcement regarding its macroprudential policy settings in July, inflation has continued to moderate and the risk of higher interest rates has receded somewhat, but we are mindful of potential shocks to household incomes from a slowing labour market.”

“That risk is exacerbated by uncertainty in the global economic environment including geopolitical instability.

“Credit continues to flow to households and businesses and is accessible to good quality borrowers. Although house price growth has eased, prices are still 40 per cent higher than before the pandemic and household debt is high relative to incomes both compared with long-term trends and relative to international peers.

“This high household debt is a key vulnerability if adverse economic scenarios came to pass. We also have seen an uptick in non-performing loans, with the potential for further rises, especially if unemployment increases.

“In light of these considerations, APRA maintains its current macroprudential policy settings. We will continue to closely monitor the external operating environment and will consider modifying these settings should that become appropriate,” Lonsdale said.

APRA further stated that housing credit is growing at “around average rates”, with the serviceability buffer operating as expected in “constraining a small share of borrowers seeking to borrow at (or near) their maximum capacity”.

When deliberating the serviceability buffer, APRA considers the impact of the buffer on access to credit, including for first home buyers. At the moment, the proportion of new lending to first home buyers is in line with long-term averages.

Moreover, accruing enough deposit funds still stands as the main constraint to prospective first home buyers looking to step into the housing market “in most instances”, according to APRA, which reflects the “relatively high level of housing prices”.

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.