Big call to ease harsh borrowing rules for first home buyers: Senate report

Restrictive rules which prevent nearly two in five first home buyers from securing financing should be eased, a major report is expected to say.

Hopeful first home buyers shouldn’t be forced to prove they can service an interest rate a prohibitive 3 per cent higher than existing interest rates, a senate inquiry has found.

The recommendation is expected to be one of seven that will be considered by the government following the release of the final report into lending rules for prospective homeowners, which will be tabled on Thursday.

During the inquiry, the Mortgage and Finance Association of Australia said about 37.5 per cent of first home buyers were unable to get financing due to the 3 per cent buffer, with the report expected to call on financial regulator APRA to lower the rate according to the interest rate of the day and other economic settings.

A report into lending rules for first home buyers is expected to call for the current restrictive 3 per cent serviceability buffer to be adjusted. Picture: NewsWire/ Gaye Gerard

While the current buffer was implemented when the cash rate was at 0.1 per cent, borrowers would now need to prove they can still service their mortgage with a 7.35 per cent interest rate due to the current 4.35 per cash rate.

Coalition home ownership spokesman Andrew Bragg said the currently financial regulations, while “unquestionably strong” was “unresponsive to the aspirations of prospective first home buyers”.

“Our inquiry examined the barriers which push that elusive first mortgage out of reach for a growing number of Australians,” Senator Bragg said.

“We probed the prudential regulator, banks, lenders and industry participants to examine regulations that can tilt the scales back in favour of first homeowners.”

Senator Andrew Bragg says lending regulations should be reformed to allow more first homebuyers to enter the property market. Picture: NewsWire / Martin Ollman

The report is also expected to call on the government to get the Australian dream of home ownership “back on track,” with wannabe buyers unable to save for a substantial 20 per cent deposit amid rising house prices, while satisfying the 3 per cent serviceability buffer.

Restrictive lending criteria also disproportionately favoured lenders who are able to seek financial help from their family, including borrowing from the “bank of mum and dad” or having parents or relatives act as guarantors for their loans.

This allows them to purchase with a smaller deposit or waive the need for lenders mortgage insurance – with the report also expected to recommend capital risk weightings to be reduced so less borrowers will need to pay the fee.

Senator Bragg, who has called for the reforms, said the current risk weighting systems were “more expensive than they ought to be,” and disproportionately benefited borrowers who are able to secure their parents as guarantors.

“These capital risk weights unfairly preference Australians with access to the Bank of Mum and Dad,” he said.

“It is time Australia had a lending policy to get the Australian Dream back on track.”

The report is also expected to call for APRA’s mandate to be changed to have to consider how regulation affects first home buyers.

Originally published as Big call to ease harsh borrowing rules for first home buyers: Senate report