How will the RBA’s recent lending changes affect house prices?

Recently, the RBA have made a small macro-prudential change to the lending environment by increasing the “buffer rate” from 2.5% to 3%.

When calculating your serviceability, the banks will add the “buffer rate” to the actual interest rate you will pay on your home loan to ensure you can service the loan at a higher rate, should the cash rate increase over subsequent years.

Under the new changes, this means borrowers need to show they can service an extra:

• $166 per month on a $400,000 mortgage
• $250 per month on a $600,000 mortgage
• $416 per month on a $1,000,000 mortgage

APRA believe this change will reduce borrowing capacity of a typical borrower by 5%.

How will this change affect house prices?

Ironfish Head of Property, William Mitchell comments:

“This is a small change, and is only expected to result in a slowing of capital growth across the markets, rather than resulting in the markets pulling back or stopping with most forecasters still predicting good capital growth rates through to the end of next year.”

Domain chief of research and economics Nicola Powell commented:

“I’m still expecting prices to grow but this might slow it down a little bit further in terms of pace.”

An additional note on the changes: this has not been designed to target investors, it will impact all borrowers equally.

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