Bar raised for borrowers tougher home loan serviceability tests

After the banking regulator imposed harsher serviceability requirements for house loans, some borrowers would likely find it more difficult to secure a mortgage. So, who will have the greatest impact?

From the end of October, the Australian Prudential Regulation Authority (APRA) requires banks to employ a minimum interest rate cushion of 3% when assessing the serviceability of house loan applications.

This means that if house loan interest rates rise to 3% above present rates, banks will have to determine whether new borrowers will still be able to afford their mortgage payments.

According to APRA, a 50 basis point increase in the buffer will cut the average borrower’s maximum borrowing capacity by about 5%.

In a letter to the banks, APRA Chair Wayne Byres stated, “The buffer offers an essential contingency for interest rate rises during the life of the loan, as well as any unforeseen changes in a borrower’s income or expenses.”

What are the most vulnerable borrowers?

All new borrowers will be affected by the increase in the interest rate cushion.

According to APRA, the impact is anticipated to be bigger for investors than for owners-occupiers.

This is because investors are more likely to borrow at a higher rate of leverage and may have other debts (to which the buffer would be applied),” according to APRA.

“On the other hand, because they are more constrained by the size of their deposit, first-time home purchasers are under-represented as a fraction of borrowers borrowing a high multiple of their income.”

What does this mean for your chances of getting a home loan?

Contact us right away if you’re concerned about how APRA’s latest announcement will affect your prospective home loan application.

To help you estimate your borrowing capacity and focus your property hunting, we can apply APRA’s new loan serviceability tests to your unique circumstances.

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at


Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

Contact Us

Schedule your free 15-min call with an advisor

Let us know how we can help below.