3% buffer too big a barrier for first home buyers
The MFAA is calling on APRA to provide more flexibility when it comes to the mortgage serviceability buffer, saying the 3% buffer is a barrier for borrowers, especially first home buyers and refinancers.
The peak body for the mortgage and finance industry was reacting to the regulator’s decision on Monday to retain the serviceability buffer at 3%.
APRA said in its review of macroprudential settings, it considered “high household indebtedness and a pick-up in credit growth, persistent cost-of-living pressures, a weakening jobs market and heightened geopolitical risks”.
Serviceability the biggest barrier for borrowers
MFAA CEO Anja Pannek (pictured above) said while the MFAA recognised APRA’s mandate to safeguard against systemic risk in Australia's financial system “our members continue to highlight the real challenges the buffer presents for borrowers —particularly first home buyers (FHBs) and those looking to refinance”.
“Homeownership remains a critical national priority,” Pannek said. “However, the current serviceability buffer has become a significant barrier to accessing finance.”
In the MFAA’s refinancing and mortgage stress survey in August 2024, its members reported that serviceability continued to be the number one barrier for clients with the buffer being the primary reason borrowers could not refinance.
Pannek said a further survey of MFAA members conducted as part of the MFAA’s response to the Senate inquiry into the financial regulatory framework and home ownership showed that, for a first home buyer, the current serviceability buffer setting was a primary barrier in securing a home loan.
“Flexibility in the serviceability measure is essential to balance financial stability with accessibility, particularly as we see affordability pressures continuing to mount across the housing market. APRA should be reviewing how this could occur without causing systemic risk,” she said.
Buffer retained due to risks, says APRA
The regulator’s chair John Lonsdale said since APRA’s last announcement regarding its macroprudential policy settings in July, inflation had continued to moderate and the risk of higher interest rates had receded somewhat, “but we are mindful of potential shocks to household incomes from a slowing labour market”.
“That risk is exacerbated by uncertainty in the global economic environment including geopolitical instability,” Lonsdale said.
In APRA’s update on its website, which details the reasons behind its decision, the regulator says credit is flowing to households and businesses and is accessible to good quality borrowers.
“That said, the level of household debt in Australia is high relative to incomes both compared with its long-term history and relative to international peers, making this a key vulnerability if adverse economic scenarios came to pass.
“With continued uncertainty in the outlook for the labour market, inflation and interest rates, APRA considers the current setting of the serviceability buffer at three percentage points to be appropriate. The sources of economic uncertainty have shifted over the past year or so, but the risk of shocks for borrowers remains.”
Further criticism of APRA’s decision
National Finance Brokers Day founder Dino Pacella (pictured below) said while he understood APRA’s commitment to maintaining financial stability, he was disappointed with its decision.
“The pressure from the mortgage and finance industry for a reduction in the buffer reflects the very real challenges facing borrowers today, and I believe APRA is missing an opportunity to ease the strain on many Australians.” Pacella said.
“With household debt at historically high levels and many families still feeling the pinch from rising living costs, the decision to keep the buffer unchanged feels out of touch with the current economic reality.”
Pacella said lowering the buffer could provide much-needed relief for borrowers, make homeownership more accessible and allow for a more sustainable pathway forward in an environment where cost-of-living pressures are only intensifying.
“One option could be to gradually reduce the serviceability buffer to 2%, giving borrowers some breathing room while still providing a margin of safety.”
Another option could be to introduce a targeted, temporary reduction in the buffer for first-home buyers or those refinancing their loans, Pacella said.
