It urges adoption of a dynamic buffer and expanded support for low-deposit first-home buyers
The Mortgage & Finance Association of Australia (MFAA) has weighed in on the federal opposition’s proposal to change mortgage lending rules, saying current serviceability standards are blocking first home buyers from entering the property market.
Opposition leader Peter Dutton last week called for a review of lending rules overseen by the Australian Prudential Regulation Authority (APRA), including its 3% mortgage serviceability buffer. The MFAA, representing the mortgage broking industry, said it welcomed efforts to address housing affordability issues.
“There are significant barriers to entry for first home buyers. APRA’s mortgage serviceability buffer set at a fixed 3% is one of those barriers,” said MFAA chief executive Anja Pannek (pictured above). “It lacks flexibility and scalability.”
The organisation made a submission to a Senate inquiry into the financial system and housing in late 2024, urging the government to move away from a fixed serviceability buffer and adopt a dynamic model.
While the 3% mortgage serviceability buffer helped manage risk during the interest rate hikes from May 2022 to February 2025, Pannek said that the current test rates of 8% to 9% were limiting both refinancing options and new home loan approvals.
“We recognise the importance of financial stability and credit risk management,” she said. “However, the reality is that in a peak rate environment, our members tell us the buffer makes it harder for existing home borrowers to move to lower rate product and presents a further obstacle for prospective first-home buyers to achieve their home ownership dreams.”
Pannek argued for a buffer that shifts in line with interest rates, saying it would not compromise financial system stability or expose banks to excessive risk.
The MFAA also called for changes to capital risk weightings on mortgages, particularly those involving low deposit loans or lenders mortgage insurance (LMI). Pannek said current APRA guidance already allows concessional capital treatment for some LMI-backed loans.
“First-home buyers have a number of choices to access the housing market – through saving for a deposit themselves, which we know is no easy feat, access to home guarantee schemes or taking out lenders mortgage insurance if a first home buyer is ineligible for government schemes,” she said. “The job of a mortgage broker is to help them with those choices.”
Pannek added that LMI, despite its cost, can help buyers enter the market sooner and that brokers are well placed to help borrowers weigh the trade-offs.
The MFAA also suggested APRA consider expanding concessional capital treatment to a broader range of low-deposit mortgage products, including those offered outside government-backed schemes.
“A further alternative to enable more first home buyers into the market would be to rebalance risk weightings to advantage younger borrowers who have a potential longer-term earnings potential,” Pannek said.
She noted that such a move could reduce capital requirements for banks, encouraging greater product innovation and improved loan terms for younger, first-home buyers.
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