Australia's banking regulator has announced that new home loan applicants will need to comply with tougher serviceability requirements, making it more difficult for some buyers to secure a mortgage.
The new requirements will require borrowers to show that they can keep up with mortgage payments even if rates rose by 3 per cent or more.
The Australian Prudential Regulation Authority (APRA) announced this morning that it has increased the minimum interest rate buffer it requires banks to use when assessing whether borrowers have the ability to service a home loan into the future.
APRA will now require lenders to assess whether new borrowers could still service a loan that is at least 3 per cent higher than that they are applying for, up from the 2.5 per cent requirement that is currently in place.
"While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building," APRA chairman Wayne Byres said.
The changes come after increasing concern about the level of debt proportionate to income being taken on by new owner-occupier borrowers.
"More than one in five new loans approved in the June quarter were at more than six times the borrowers' income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead. With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted," Mr Byres added.