Mortgage Rules Hurting First Home Buyers
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STATEMENT
MORTGAGE RULES HURTING FIRST HOME BUYERS
The Senate has commenced hearings into home lending rules. The first public hearing of the Senate Economics Committee's Inquiry into home lending reveals the mortgage rules are damaging first home ownership prospects.
This has occurred through the Australian Prudential Regulation Authority’s (APRA) narrow mandate, which hasn’t been revised in many years, and the blunt instrumentality of serviceability buffers in particular.
It is well understood that the supply challenge is supreme, but the hearings have demonstrated the potential for complementary reforms to support first home ownership.
As the Housing Industry Association explained, APRA’s rules “are not appropriate in balancing public good, which is not just reducing risk, but also improving home ownership.”
It was also revealed that the serviceability buffer is a blunt tool that can lock people into mortgage prisons.
The Finance Brokers Association of Australasia highlighted that the buffer disproportionately affects first-home buyers as they “typically have smaller deposits and they also have lower income, and so those buffers … bite more deeply into what would be seen as that excess to service the loan”.
The Committee heard evidence that the buffer is also damaging supply. REA Group testified that “most new housing is only built by pre-sales reaching a certain milestone and therefore the 3% buffer in the market is also reducing new housing supply.”
While we want strong and stable banks, the Reserve Bank stated that “it is not an aim of prudential regulation to completely eliminate risk.” The object of prudential regulation is to balance risk against all other objectives. At the moment it appears the pendulum has swung too far in favour of risk aversion. This is clearly damaging home ownership prospects.
The Committee will continue to probe core issues with APRA’s mandate and its blunt approach at the next public hearing on Thursday, 24 October 2024.
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