The Australian Prudential Regulation......>

AUSTRALIA: The Australian Prudential Regulation Authority (APRA) has begun

consulting on possible revisions to its guidance on the serviceability

assessments that authorised deposit-taking institutions (ADIs) perform on

residential mortgage loan applications.

- In a letter to ADIs issued today, APRA has proposed removing its guidance that

ADIs should assess whether borrowers can afford their repayment obligations

using a minimum interest rate of at least 7 per cent. Instead, ADIs would be

permitted to review and set their own minimum interest rate floor for use in

serviceability assessments.

- APRA has also proposed that ADIs' serviceability assessments incorporate an

interest rate buffer of 2.5 per cent. Currently, APRA expects ADIs to assess

loan serviceability using the higher of either (i) an interest rate floor of at

least 7 per cent, or (ii) a 2 per cent buffer over the loan's interest rate.

APRA's guidance also indicates that a prudent ADI should use rates comfortably

above these minima; most ADIs use 7.25 per cent and 2.25 per cent respectively.