Citing financial stability risks APRA has jacked up the minimum 'rate buffer'.
The Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications:
- In a letter to authorised deposit-taking institutions (ADIs), APRA has told lenders it expects they will assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate. This compares to a buffer of 2.5 percentage points that is commonly used by ADIs today.
Yesterday's RBA statement (from Governor Lowe) was expected to have included some discussion on tightening macro-prudential rules sometime in the near future. It did not. And now we get this, a small step but a little action is much better than a heap of words!
The background to this is a surge in Australian home prices, especially in Sydney and Melbourne. Regulators are concerned this will lead to borrowers over-extending, and thus posing financial stability risks.
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APRA is a part of Australia's regulatory framework, this via the RBA website:
Responsibility for the regulation and supervision of the Australian financial system is vested in four separate agencies:
- the Australian Prudential Regulation Authority (APRA);
- the Australian Securities and Investments Commission (ASIC);
- the Reserve Bank of Australia (RBA);
- and the Australian Treasury.
