Borrowing Capacity Boosted by 14pc blog image

Borrowing Capacity Boosted by 14pc

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Australian’s borrowing power got a major boost this week, when the Australian Prudential Regulations Authority (APRA) loosened the lending criteria it had forced on the banks.

APRA announced on Friday that it is scrapping the obligation on banks to assess someone’s borrowing capacity assuming they are paying over seven percent in interest rates.

Instead, banks are now required to test if customers could manage repayments with rates at least 2.5 percentage points above a loan’s current rate.

With two rate cuts, an additional assessment buffer of 2.5 per cent means loans will be assessed at around the considerably more generous six per cent.

One investment bank calculates these changes will increase borrowing capacity by up to 14 per cent.

Analysis by UBS shows that a couple earning a combined $200,000 with two children paying a comparison rate of 3.5 per cent will have an additional $150,000 borrowing capacity.

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