Coalition homebuyer pledge wouldn’t significantly improve affordability, Canstar figures show

Financial analysts say the Coalition’s plan to ask regulators to relax the ceiling on borrowers risks increasing house prices while creating only a small benefit.

Opposition Leader Peter Dutton announced the Coalition policy on Tuesday. Picture Thomas Lisson

The Coalition’s headline home affordability measure would boost affordability by just $40,000 if banks were forced to slash their serviceability buffers by a third, and industry sources say most lenders already charged the same rates for those with or without Lenders Mortgage Insurance.

On Tuesday, Peter Dutton revealed plans to ask the banking regulator to trim home lending rules, as well as direct banks to ease capital rules for borrowers with slim deposits.

The Coalition said it would direct the Australian Prudential Regulation Authority, which oversees the banking sector, to consider the impact of its rules on housing and reduce the “overly cautious serviceability buffer”.

APRA currently requires banks to assess borrowers at 3 per cent above the reference rate for a home loan application, in a bid to ensure homeowners can continue to pay their mortgage if interest rates were to rise.

This level was set after APRA raised the serviceability buffer during the Covid-19 downturn, as the official cash rate dropped towards 0.1 per cent.

Analysis by financial comparison site Canstar finds that if the serviceability buffer were trimmed to its pre-Covid level of 2.5 per cent, the borrowing capacity of a borrower earning the average $103,024 full-time wage would be boosted by just $20,000.

Canstar said if the serviceability buffer were reduced to its pre-2014 level of 2 per cent, borrowers on that wage could expect a $40,000 boost. That’s compared with the median house price of $885,361, or median apartment price of $673,491.

But Canstar data insights director Sally Tindall said that before 2019 banks were required to use a 7 per cent mandated floor rate, meaning borrowers were unable to benefit from the relaxed buffers despite the official rate hovering around 0.75 per cent.

“The person who is most likely to benefit from this structural change is the person selling the property, not the person taking on more debt,” Ms Tindall said.

“It’s a drop in the ocean.”

Canstar Data Insights director Sally Tindall.

Ms Tindall said serviceability buffers were biting borrowers seeking to refinance. But APRA has told banks they can relax the buffers for existing borrowers seeking to refinance to lower rates.

Ms Tindall said the Coalition’s push to see banks relax their rules around Lenders Mortgage Insurance, charged to borrowers with deposits below 20 per cent, may go some way to opening the door to homebuyers.

The Coalition said borrowers using LMI were not seeing the same benefits as those backed by the bank of mum and dad, facing higher borrowing costs.

Ms Tindall said many borrowers on LMI did not pay higher borrowing costs from most banks, including at least one of the Big Four banks.

“There are more than 10 lenders that charge the same rate regardless of deposit size on at least one of their loans,” she said.

“Many of these also come with competitive interest rates.”

She said if steps were taken to slash LMI costs for first time borrowers with 5 per cent deposits some could save up to $35,000.

Barrenjoey banks analyst Jon Mott has previously advocated for reducing risk weights and interest rates for first-home buyers, which could see borrowers bank $18,100 on a $600,000 mortgage.

Housing supply and affordability is a central issue of the federal election campaign. Picture: Brendan Radke

The move by the Coalition comes after months of pressure on APRA, with Liberal senator Andrew Bragg taking aim at the regulator in the Senate.

The Housing Industry Association backed the move to pair back the serviceability buffer, saying that its current level was “unnecessarily restrictive”.

HIA managing director Jocelyn Martin said access to finance was “one of the most significant barriers holding back more Australians into housing”.

“With home ownership rates at record low levels, we need all levels of governments and all parties to look at all options to reverse this worrying trend,” she said.

However, the peak body for the banking sector said increasing borrowing power was not the silver bullet for Australia’s housing affordability challenge.

An Australian Banking Association spokesman said all options to fix housing affordability had to be on the table.

“Demand side support measures can be important, but so too are measures to free up supply and get more homes built for all Australians,” he said.

Building approvals lifted in January, up 6.3 per cent for the month. But new dwelling approvals in NSW and Victoria declined, down 0.8 per cent and 1.2 per cent respectively.

National Australia Bank personal banking boss Andy Kerr said the bank still believed increasing housing supply was “fundamental to improving affordability”.

“NAB also supported the consideration of a lower serviceability buffer for first-home buyers. We believe this change would provide modest but meaningful support to help more first-home buyers enter the market,” he said.

“NAB is committed to responsible lending while supporting balanced regulatory approaches that help more Australians access housing.”

Originally published as Coalition homebuyer pledge wouldn’t significantly improve affordability, Canstar figures show