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The FBAA has called for government intervention over APRA’s “nonsensical” decision to keep the serviceability buffer at 3 per cent.
The Australian Prudential Regulation Authority (APRA) is under scrutiny over its decision to leave the mortgage serviceability buffer at 3 per cent, with the Finance Brokers Association of Australia (FBAA) accusing the regulator of not acting in the best interest of Australians.
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The FBAA labelled the decision “nonsensical” and said the regulator had let down home loan borrowers.
FBAA managing director Peter White AM called on the federal government to intervene and force the regulator to reduce the buffer rate, which he said is preventing thousands of Australians from purchasing a home and forcing thousands more to remain in “mortgage prison” unable to refinance.
He said that while a 3 per cent buffer may have been appropriate in the past (because interest rates were at an all-time low and were always going to rise significantly), having the same buffer “is ridiculous when interest rates are higher”.
“We have a scenario being played out across Australia where people who have been paying their mortgage without default are being prevented from refinancing to a loan with a lower monthly payment,” White said.
“How crazy is a situation where we are forcing borrowers to pay more during a cost-of-living crisis; not because they can’t afford it, but because of a regulator who refuses to see logic?”
The FBAA MD stressed that it was time for the government to intervene and force the regulator’s hand to stop it from hurting borrowers further.
He pointed out that the high buffer rate was preventing first home buyers from securing a home in the middle of a housing crisis, putting more pressure on the rental market.
“To secure a mortgage, many potential borrowers must prove they can service a loan more than $1,500 above what their repayments will actually be,” he said.
While acknowledging that a buffer rate protects both banks and borrowers, White said interest rates are going down in most Western nations.
“We can’t live in the past, and a buffer of 1.5 to 2 per cent is far more appropriate today and in the near future.
“APRA can reassess the rate on a regular basis, so I’m not suggesting it can’t be raised in the future,” he said.
Calls are growing for the APRA to build more flexibility into the serviceability buffer.
Speaking earlier this year, the CEO of the Mortgage and Finance Association of Australia (MFAA), Anja Pannek, said: “In our refinancing and mortgage stress survey results released earlier this year, our members confirmed that serviceability continues to be the number one barrier for clients looking to refinance, with the 3 per cent APRA serviceability buffer rate being a key factor in borrowers being unable to meet serviceability requirements ...
“We believe there should be greater flexibility for lenders to assess applications using the 1 per cent buffer, for like-for-like refinances so people can move to a loan better suited to their current needs.”
APRA defends buffer decision
Earlier this week, the prudential regulator maintained that the 3 per cent buffer would remain, amid growing calls for the regulator to move to a dynamic buffer.
APRA announced that it would keep its current macroprudential policy settings steady, after completing its regular review of domestic and international economic and financial conditions and risks.
While banks do have the discretion to drop the buffer as an exception, APRA said it believes maintaining the serviceability buffer for banks at its current level of 3 percentage points over the carded rate is “appropriate”.
In reaching the decision to keep the settings steady, APRA noted rising household indebtedness and a pick-up in credit growth, persistent cost-of-living pressures, a weakening jobs market and heightened geopolitical risks. Balanced against these risks, APRA said that bank lending standards remain sound and non-performing loans remain low.
In its information paper outlining the reasons for APRA’s decision, the regulator said: “The sources of economic uncertainty have shifted over the past year or so, but the risk of shocks for borrowers remains. The risk of persistently higher inflation and further increases in interest rates in the near term has reduced. Meanwhile, higher unemployment and some persistence in cost-of-living pressures is expected, which present risks to household incomes, including if more adverse scenarios eventuated.
“Risks in the global economic environment which could impact the Australian financial system also remain pronounced, including those from ongoing geopolitical instability.”
“The setting also takes into account risks to the financial system associated with Australia’s high overall household indebtedness and housing-related vulnerabilities.”
[Related story: 3 per cent buffer to remain: APRA]
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