Australia’s banking regulator, APRA, has declined to reduce the serviceability buffer for new mortgages, maintaining it at 3 per cent despite calls from the Australian Banking Association, NAB, ANZ, and various politicians. They argue that the current buffer is hindering first-home buyers from entering the property market. However, APRA remains unconvinced, citing ongoing financial risks due to a slowing labour market and global economic uncertainties, including geopolitical instability.
APRA chair, John Lonsdale, highlighted that while house price growth has slowed, prices are still significantly higher than pre-pandemic levels, and household debt remains a concern when compared to historical trends and international standards. The serviceability buffer requires potential borrowers to demonstrate their ability to afford repayments even if interest rates rise by 3 per cent, which critics claim restricts access to home ownership for many.
Senator Andrew Bragg pointed out that while a 3 per cent buffer might have been reasonable with a cash rate of 1 per cent, it seems excessive at the current rate of 4.35 per cent. This high buffer is perceived as detrimental to first-home buyers, potentially trapping them in what has been described as “mortgage prisons” where refinancing becomes unfeasible. Historically, the buffer has been adjusted several times, reflecting changes in the economic landscape.