"Currently, lenders assess a borrower’s ability to repay their loan by assuming an interest rate “comfortably above” 7 per cent, regardless of the actual interest rate available at the time of lending, to create a buffer in case rates move."
"The regulator proposed lenders set their own serviceability assessment guides, recommending that serviceability be assessed against a rate 2.5 per cent higher than the actual rate – meaning someone looking at a loan at 3.5 per cent would be assessed against their ability to repay their mortgage at 6 per cent, instead of the current 7 per cent or higher."
This means there is a lower barrier for borrowers to obtain mortgage finance.
In the article, Steve Jovcevski, property expert with financial services comparison site Mozo said "someone capable of receiving a $600,000 loan under the current rules could expect to borrow $50,000 to $60,000 more if the floor is removed".
"The change is not without its challenges though. Julie DeBondt-Barker, the founding director of Melbourne-based buyer’s advocate Buyer’s Home Base, said that while the change would “put a little bit more life into the market”, it would also place an added burden on buyers’ budgeting skills."
“Home buyers will be able to put a bit more money towards what they want to buy, but the downside I can see is that this puts more of the responsibility back onto the buyer as far as what their limitations are,” she said.
“I think buyers have to understand they’re being handed the responsibility to not over-spend and keep within their budget. They need to be cautious.”