Non-bank lenders that have faced a competitive onslaught from the big banks say mortgage buffers did their job, but now risk doing more harm than good.
But the sharp increase in interest rates is coupled with a requirement that lenders assess borrowers on the ability to service a loan at a rate 3 per cent above existing loan costs to ensure they can handle an adverse change in the interest rate environment.That threatens to reduce the borrowing capacity of first home buyers but also may disqualify existing borrowers from switching home loan providers.
While Pepper does not fall under the purview of APRA, it and other non-bank lenders do impose serviceability buffers of about 2.5 per cent to 3 per cent to comply with responsible lending laws. But he said buffers were introduced when rates “were at an all-time low” to avoid a large shock when home loan rates returned to normality.
“Any reduction in the buffer would have a material impact on customers being able to escape their mortgage prison,” he said.The higher buffers have effectively reduced how much money customers can borrow, helping to push property values lower. Scott McWilliam, chief executive of non-bank lender Resimac, said it was borrowers at the fringes who may not be eligible to refinance their home loans in a higher interest rate environment.
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