In a recent interview, Chris Taylor, the Chief of Policy at the Australian Banking Association, discussed the potential benefits of reducing the 3% serviceability buffer for first home buyers. According to Taylor, this adjustment could provide much-needed support for newcomers to the property market.
“The current buffer set by the Australian Prudential Regulation Authority could be more flexible for first home buyers,” Taylor stated. “It should be tailored to reflect a borrower’s unique circumstances and current market conditions. This change could really help more buyers get their foot in the door when purchasing their first home.”
Taylor emphasized that there’s room for lenders to consider the future income growth of borrowers within existing regulatory guidelines. “This could open up more opportunities for those who are cautiously optimistic about their financial prospects,” he noted.
However, consumer rights advocates have raised concerns about the implications of easing lending criteria. They warn that such proposals could lead individuals deeper into debt, particularly those least equipped to handle it. Domenique Meyrick, co-CEO of Financial Counselling Australia, highlighted a troubling trend, noting that since July, 42,000 people have reached out to the national debt line for assistance, with a third of those calls specifically concerning mortgage stress.
Meyrick remarked, “The current policy measures are effectively keeping a crisis at bay. It’s crucial that we maintain these protective measures to safeguard the community, as we are witnessing increasing levels of financial stress.”
Julia Davis from the Financial Rights Legal Centre echoed these sentiments, stating that while allowing higher borrowing limits might stimulate the economy, it could also push individuals beyond their financial capabilities. “It’s a lazy policy idea that shifts the burden onto those who can ill afford it,” she asserted.
Historical data supports the advocacy group’s concerns, with 5,000 home repossessions occurring annually in New South Wales before the introduction of the 3% buffer. Last year, the state recorded 1,413 repossessions.
In defense of the proposal, Taylor reported a rise in new homeowners, largely due to government initiatives like the federal first-home guarantee scheme, where buyers contribute 5% of a loan with an additional 15% backed by the government. “In the last five years, banks have provided $298 billion in loans to over 683,000 first-time buyers, a 41% increase compared to the previous five years,” he said.
The inquiry heard from representatives of major banks, including NAB, Westpac, and Commonwealth Bank, who confirmed that about 10% of their lending went to first home buyers. However, Taylor cautioned that policies aimed solely at increasing demand could exacerbate existing market challenges, driving property prices higher and leaving many prospective buyers priced out of the market.
About the author