Major home loan crackdown announced – here’s how it could make it harder to get a mortgage

Australian borrowers will soon have a tougher time getting a new home loan with the banking regulator announcing new rules to tackle the surge in debt levels.

National property prices in September soared by 20.3 per cent – the fastest annual pace since June 1989.

The Australian Prudential Regulation Authority,  the banking regulator, on Wednesday announced stricter new lending rules, with typical homes even outside Sydney and Melbourne very unaffordable for ordinary borrowers. 

Under the new rules, the banks will have to model how a borrower would cope with mortgage rates climbing by three percentage points.

The big banks are now offering fixed mortgage rates of 2 per cent and the Reserve Bank of Australia has vowed to keep the cash rate at a record low of 0.1 per cent until 2024. 

For the first time ever, an average income earner buying a typical Australian home would be in mortgage stress where they would struggle to make monthly repayments, even with interest rates at a record low.

Australians on a full-time salary of $90,329 would now have a debt-to-income ratio of six just to buy a median-priced $674,848 home with a 20 per cent deposit factored in, CoreLogic data shows. 

Someone earning that salary buying a typical Australian home, with a 2.19 per cent three-year fixed mortgage from the Commonwealth Bank, would now be paying $2,048 a month in mortgage repayments to service a $539,879 debt.

Under the APRA changes, the banks would have to model how this borrower would cope with the mortgage rate going up to 5.19 per cent, which would see their monthly repayments climb to $2,962 or by an extra $914 a month.

APRA considers someone with a debt-to-income ratio of six or more to be mortgage stress where a borrower would struggle to meet their mortgage obligations every month after the bills and living costs are factored in.

The banking regulator’s chairman Wayne Byres said the new rules were needed so borrowers weren’t taking on debt they could not afford, with owner-occupiers instead of investors now dominating the market.

‘In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future,’ he said.

An APRA crackdown on lending rules has previously caused a real estate downturn. 

The Australian Prudential Regulation Authority, the banking regulator, on Wednesday announced stricter new lending rules, with typical homes even outside Sydney and Melbourne unaffordable for ordinary borrowers (pictured is a house at Toongabbie in Sydney’s west on the market for $1.3million)

During the last sustained downturn before the pandemic, Sydney property values fell by 15.3 per cent between July 2017 and May 2019 after the banking regulator introduced tighter rules on investor and interest-only loans. 

Should that happen again, Sydney’s median house price of $1.312million would fall by $200,682 to $1.1million.  

Real estate values in Australia’s most populated city are unattainable for average income earners, with someone on a $90,329 salary facing a debt-to-income ratio of 11.6 to pay off a $1.049million mortgage.