29-04-2025
This change could see a couple be able to borrow up to $100k more on their home loan
New research says the current three per cent mortgage stress test is locking too many Australians out of home ownership - not because they can't afford a mortgage, but because the rate isn't changing with the current climate.
Research found that a 0.5 per cent reduction in the buffer could boost borrowing capacity by 5 per cent and a tidy $276 billion nationally. Pic: Shutterstock
Commissioned by the Finance Brokers Association of Australia (FBAA), the research revealed that lowering the home loan serviceability buffer to 2.5 per cent would boost borrowing capacity and allow hundreds of thousands of hopeful homeowners to qualify for a loan.
The research found that a 0.5 per cent reduction in the buffer could boost borrowing capacity by 5 per cent and a tidy $276 billion nationally.
It would see around 270,000 more people qualify for a median home loan, with almost 400,000 first-home buyers aged 25 to 34 feeling the biggest benefit.
FBAA Managing Director Peter White AM believes it's a reform that could change people's lives.
"We've said for a very long time that this simple move would make a massive difference to the housing market because we are talking about people who can afford to service these loans."
With first-home buyers struggling in an ongoing housing hellscape, housing reform is a major focus of the upcoming election.
Mr White said the current rate is "unrealistic" and that the FBAA had given the research to both the government and opposition.
What are the positives?
Lowering the serviceability buffer from three to 2.5 per cent would have an immediate effect - allowing more people to qualify for home loans and increase their borrowing power.
"This change would make a big difference for those who were on the edge of being able to buy," said Finder's personal finance expert Sarah Megginson.
"This shift just unlocks that little bit of extra borrowing power, which is going to make the difference and allow them to get the home."
Based on a single person with the average Australian salary of $102,000, Ms Megginson outlines that the 5 per cent boost would change that person's borrowing power by about $55,000.
"For a couple, that would make it closer to $100,000 - so it does make a big material difference on what you can afford to borrow."
It would also be a welcome respite for mortgage holders who've been unable to refinance since rising interest rates.
Mr White said the research confirmed that the reduced buffer may "ease loan stress among current mortgage more are freed up to refinance."
Mr White said the research confirmed that the reduced buffer may "ease loan stress among current mortgage more are freed up to refinance. Pic: Supplied
"This will free mortgage prisoners who are locked into higher rates unable to refinance due to the serviceability rate."
Ms Megginson believes a lower buffer for existing mortgage holders makes the most sense.
"I am actually more in favour of it for refinancers because they're already in the market.
"If you're refinancing, you're not taking supply, so you're not driving up prices in the market to someone who's going from a renter to a buyer."
Renters also would see benefit from a change.
Mr White said a reduction in the buffer will ease pressure on the rental market from both ends, allowing more people to buy, and ensuring those with existing loans don't end up renting again.
Are there any downsides?
Housing issues in Australia are complex, and a multi-faceted approach is needed to adequately address the nuances we're currently facing.
For this reason, Ms Megginson is hesitant that dropping the buffer is unequivocally positive.
"I'm not certain that it's the right decision to make as it really does depend on an array of other policy changes. [With the election] we need to be wary of too many policies that will end up driving too many people into the market at the same time."
One major concern is that lowering the buffer will increase home values, as a boost to borrowing capacity will push more buyers into the market when there is already low supply - pricing out the very buyers it meant to help.
"The change would mean everyone has increased borrowing capacity at the same time," said Ms Megginson.
"The change would mean everyone has increased borrowing capacity at the same time," said Finder's personal finance expert Sarah Megginson. Pic: Supplied
"But if we're not addressing the supply of housing in Australia, where we've been undersupplied by over 100,000 homes a year for about 20 years, the impact is that houses will go up in price because demand has suddenly increased."
Without addressing supply, we kick affordability issues down the road to the next generation.
"Any initiative to make housing more accessible has the potential to result in property values increasing due to supply and demand, but the bottom line is that this is a very effective way to help hundreds of thousands of people enter the market, and remain in the market," said Mr White.
Ms Megginson also holds concern that first-time buyers could wind up in financial stress.
"Just because your borrowing power increases doesn't mean you're going to be able to service at that higher level. A lot of first-home buyers are going to be stretched," she said.
"The reality of what it's actually like to pay a mortgage can be jarring.
"First-time buyers need to go in with their eyes wide open to the extra costs of buying a home: maintenance, rates, insurance, if you're in an apartment, strata levies - these extra costs that you didn't pay when renting can eat into your affordability."
