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Leading up to the federal election (3 May), the opposition has announced a range of housing policies intended to unlock more home ownership for Aussie buyers.
One of them is lowering the 3 per cent serviceability buffer implemented by the Australian Prudential and Regulation Authority (APRA) down to 2.5 per cent, which could reportedly allow tens of thousands of Australians to obtain a home loan, according to the Coalition.
The idea was welcomed by industry associations such as the FBAA; however, some in the industry have questioned whether or not this is a sound long-term plan.
Speaking to Broker Daily, director of FirstPoint Mortgage Brokers, Troy Phillips, said reducing the buffer to 2.5 per cent would be “absolutely well received by a lot of Australians”.
“It makes more sense than some of the government’s more creative offerings, shared equity schemes, for instance, which in my eyes are fraught with danger and well outside their lane,” Phillips said.
“It would just create more jobs in the public sector, more inefficiencies and be a monumental fail. Leave it for the private sector, the entrepreneurs.
“That said, let’s not kid ourselves, this is a short-term sugar hit that doesn’t address the bigger issues. Affordability and supply are the elephants in the room, and shaving half a percent off the buffer isn’t going to solve either.
“Politicians on both sides love a headline about home ownership, but when the rubber hits the road, the practical benefit is marginal, especially in a high-rate environment where the buffer is just one piece of the puzzle.”
Echoing a similar sentiment, branch principal and mortgage broker at Yellow Brick Road, Earlwood, Effie Nicol, believes it’s “just a quick fix”.
“Reducing the buffer from 3 per cent to 2.5 per cent might boost borrowing capacity now, but it doesn’t address the real issue,” Nicol said.
“The buffer is there to protect borrowers from future rate rises and lowering it could lead to more financial stress down the track.
“A smarter approach would focus on long term solutions like housing supply and wage growth, not just short-term adjustments.”
According to Phillips, even a “modest increase in borrowing capacity can fuel demand in this country, especially with rate cuts likely on the horizon.
“First-home buyers, who tend to borrow close to their limit, would jump at it. But without a serious lift in supply, more demand just drives prices higher, making it even harder for the next group coming through,” Phillips said.
The other conversation we keep dodging is negative gearing. It was never designed to let people own 20 bog-standard properties and arbitrage the tax system.”
“We need to be bold, cap the number of properties that can be negatively geared and start building some proper policy architecture,” Phillips said.
Nicol said that should the changes go through, it could generate more interest in the property market, with increased borrowing capacities leading to increased activity.
“However, with more buyers and the same level of supply, property prices are likely to rise even higher,” she said.
“That’s great if you already own a home, but tougher for first home buyers trying to get in. We really need a balanced approach boosting activity while also ensuring sustainable growth and long-term affordability.”
The 3 per cent buffer was introduced during the pandemic when interest rate levels were reduced to emergency levels of 0.1 per cent. Phillips said that this buffer “did its job during the rate rise cycle” and protected borrowers and banks.
“But now? It feels a bit heavy-handed,” he said.
“A move to 2.5 per cent makes sense in today’s environment, particularly for lower-risk borrowers who have demonstrated strong servicing and stability.
“That said, any change to the buffer needs to come from APRA independently, not as a political football.
“I know plenty of families doing it tough right now, who’d love to see three rate cuts by Christmas. But we can’t have government jawboning the RBA or APRA – stability and independence matter more than ever right now.”
Meanwhile, Nicol said that she believes that leaving the buffer at 3 per cent “is the right move”.
“It gives borrowers the breathing room they need to handle repayments if rates go up unexpectedly in the future. Even with potential rate cuts ahead, this buffer helps keep people’s finances stable,” Nicol said.
“Reducing it now might offer quick gains, which could leave borrowers vulnerable further down the track. It’s all about making sure people are protected in the long run.”
[RELATED: Coalition to reduce serviceability buffer, if elected]
