Practical implimentation of 3% serviceability buffer

There's been several threads regarding APRAs direction on banks to increase the serviceability buffer from 2.5% to 3.0%. APRAs requirement is that this becomes effective from the first of November 2021.

I've had quite a few clients asking me what the effect of this has been. Only this morning I've received the first formal communication from a lender about this. It's a fairly simple email from Macquarie Bank indicating that the new calculator is available that takes this into account.

Alongside this change, they're also updating the HEM (living expenses). Although this is to be expected, I anticipate the two changes combined will have a reasonably significant impact on borrowing power for some people.

What is interesting is the following comment in the notice:

This means that even if you've got a pre-approval today, if you don't receive the full approval before November, it will be reassessed using the new calculator.

Ouch!

 

Macquarie pre-apps are pretty worthless anyway but people going to auctions should take extra care.

 

For Macq for 70 ltv P&I OO loans
Practical implication of this change is near nil. The existing floor rate covers this change as it’s roughly 3% above their low rates - ie there isn’t much of a reduction to BC for OO borrowers with this change with them.
It does impact all INV loans though.

 

We've been playing around with the new Macquarie calculator a little this morning, comparing results on some files with the previous calculator.

Whilst the comparison has been fairly basic and only on limited files, I'd say Redom's previous predictions of a 5% reduction in serviceability are about right.

 

Would you say that the impact on borrowers with multi-property portfolios would be more in terms of the marginal purchase decision?

I am thinking if someone's total borrowing capacity is high, let's say $3m, and they have existing borrowings of $2m. Now they would be able to borrow $850k instead of $1m for the next purchase.

On the other hand if you are a first home buyer with $1m capacity, you would be able to borrow $950k.

Is my thinking right?

 

CBA sent confirmation today. Start 30/10

 

But CBA are applying old criteria to preapproved loans:

Applications submitted on or from 30 October, will be assessed using the new Home Loan Interest Rate Buffer.

Where an application was conditionally approved or submitted for assessment before 30 October, we will honour existing applications subject to it converting to a full application within 90 days of the conditional approval, provided there are no changes to the application outside of the acceptable changes.

 

My analysis is fairly superficial, but think of it in terms of total borrowings.

If you could borrow $3M which is made up of your existing loans plus proposed loans, your new limit would now be about $2.7M.