Coalition confirms commitment to reduce serviceability buffer

But Sukkar has said that this mechanism contributes to a scenario locking Australians out of home ownership “not because they can’t afford a mortgage, but because the rules are too inflexible”.

“Labor’s financial system is locking too many Australians out of home ownership – not because they can’t afford a mortgage, but because the rules are too inflexible,” Sukkar said on Tuesday (1 April).

“We will make it clear that APRA must consider the impact of its rules on access to housing – particularly for first-home buyers.

“That means reducing the overly cautious serviceability buffer, which was introduced when rates were near zero but remains unchanged even as the cash rate sits above four per cent.

“This one-size-fits-all rule is stopping tens of thousands of Australians from getting a home loan – even when they can meet the repayments with a prudent margin against unexpected future rate rises.

“That’s not good regulation. It’s a barrier to aspiration.”

Sukkar also said a Coalition government would require APRA to adjust the capital treatment of loans backed by lenders mortgage insurance (LMI) through its Statement of Expectations.

“Right now, Australians without access to the ‘Bank of Mum and Dad’ are punished by higher borrowing costs – even when the actual risk is the same or lower,” Sukkar said.

“That’s a systemic bias in favour of inherited wealth. We will remove it.

“This is not about compromising stability or independence. APRA’s core mandate remains.

“But the Statement of Expectations is the government’s tool to ensure the regulator also supports broader economic objectives – like home ownership and fair access to finance.”

Spotlight on serviceability

The suitability of the buffer was one of the big questions from last year’s Senate housing inquiry, where the Senate economics reference committee recommended APRA prepare prudential guidelines for a lower buffer that “considers the long-term benefits of widespread home ownership”.

Commenting on the recommendations at the time, the inquiry’s chair, Senator Andrew Bragg, said macroprudential tools like the serviceability buffer had “constrained first home ownership for too many Australians” and that the combination of these recommendations, if enacted, “will improve access to finance and reduce cost”.

However, the prudential regulator had earlier indicated its intention to keep the mechanism at its current level of 3 per cent points over the carded rate, describing the level as “appropriate”.

In a February address to the Mortgage and Finance Association of Australia (MFAA), Luke Howarth, the shadow assistant treasurer and shadow minister for financial services, reiterated the Coalition’s intention to put the buffer under the microscope, flagging improving serviceability and access to finance, particularly for first home buyers, as a priority.

Howarth had previously told The Adviser the serviceability buffer could be tweaked in order to better support home buyers.

Turbo charging house prices: Greens

Meanwhile, Max Chandler-Mather, Greens spokesperson for housing and homelessness, criticised the announcement, describing any relaxation of home lending rules as a “disaster waiting to happen”.

“The Prime Minister and the Opposition Leader were able to buy homes when they were young without taking on million-dollar mortgages, and all the Greens are saying is that this generation should be able to do the same,” Chandler-Mather said.

“If the major parties were serious about home ownership they would stop turbo charging house prices, by scrapping negative gearing and the capital gains tax discount for property investors with multiple homes.

“Coordinate nationwide caps on rent increases, so renters can actually afford to save for a deposit in the first place. And set up a government developer to build and sell homes at prices first home buyers can actually afford.”

A question of flexibility

Members of the broking industry have also commented on the Coalition’s announcement.

Anja Pannek, Mortgage & Finance Association of Australia CEO, said a fixed 3 per cent buffer was a barrier to entry for first home buyers that “lacks flexibility and scalability”.

Pannek also reiterated the body’s recommendation to move to a dynamic buffer, as outlined in the MFAA's submission to last year’s housing inquiry.

“We recognise the importance of financial stability and credit risk management. However, the reality is that in a peak rate environment, are members tell us the buffer makes it harder for existing home borrowers to move to lower rate product and presents a further obstacle for prospective first home buyers to achieve their home ownership dreams,” Pannek said.

“Through this lens, we proposed a dynamic buffer that adjusts with interest rates – shifting up when interest rates decrease or down when interest rates increase.

“This is a considered move that wouldn’t introduce undue stress to the financial system, including disproportionate risk for banks.”

Last year, Peter White, managing director of the FBAA, followed a similar line when he told The Adviser he believed the serviceability buffer is “still too high”.

“We’re in a marketplace where [interest rates] are stable, I don’t see rates going up again for quite a long time,” White said.

“The $64 million question is, when do rates go down? Now with certain indicators, [it’ll be] probably the back end of the first quarter of 2025 before we see [rate cuts].

“Three per cent, in my mind, is still too high. I’d like it to be around one and a half to 2 per cent.”

[Related: ‘Restoring the dream of home ownership’: Coalition pledges $50k scheme to first home buyers]