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UDIA Advocacy Win

UDIA has been advocating on behalf of our members to provide input to the Australian Prudential Regulation Authority (APRA) on the proposed revisions to the Prudential Practice Guide APG 223 Residential Mortgage Lending. 

APRA issued a formal response confirming banks will be able to set their own minimum interest floor rate for serviceability assessments and utilise a revised interest rate buffer of 2.5% over the loan’s interest rate. 

UDIA recommended a 2% serviceability buffer (rather than the 2.5% APRA has now set) and whilst APRA fell short of accepting the lower rate, it indicated they are open to reviewing the buffer rate if needed in the future. Our press release has been circulated to key media. 

19 of the 26 submissions to APRA last month are public and can be viewed on the APRA website.

Key points: 

  • While the majority of respondents supported APRA’s proposal to remove the guidance to use a floor rate of at least 7%, some respondents recommended that APRA maintain an explicit floor rate lower than 7%, or alternatively set a range.
  • Given the introduction of differential pricing for mortgage products, APRA remains of the view that it is appropriate to remove the quantitative guidance on the floor rate from APG 223. APRA will still expect ADIs to determine, and keep under regular review, their own floor rate(s) based on the current position within the interest rate cycle, and their portfolio mix and risk appetite. At this time, APRA does not believe that additional guidance is necessary.

APRA remains of the view that, with the removal of the 7% serviceability floor from APG 223, the increase in the expected level of interest rate buffer will ensure that sufficient prudence is retained in ADIs’ serviceability assessments, accounting for the inherent uncertainty in lending decisions. APRA also considers that a buffer of 2.5% is appropriate in the current environment but, is open to reviewing the buffer rate if needed in the future.

APRA Chair Wayne Byres said that in the prevailing environment, a serviceability floor of more than 7% is higher than necessary for ADIs to maintain sound lending standards. Additionally, the widespread use of differential pricing for different types of loans has challenged the merit of a uniform interest rate floor across all mortgage products.

UDIA National Submission
APRA Response to Submissions
UDIA National Media Release