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Australian borrowers face even tougher lending rules as house prices in big cities and coastal areas surge by more than 30 per cent in a year.  

Wayne Byres, the chairman of the Australian Prudential Regulation Authority (APRA), has hinted there were even stricter rules the banking regulator ‘could deploy in the future’ as national property prices soar at the fastest annual pace since 1989.

Over the past two weeks, the banking regulator has required banks assess how a prospective borrower would cope with a three percentage point increase in mortgage interest rates.

With the big banks still offering fixed loan rates of just two per cent, lenders have to calculate how an average income earner paying off a typical Australian home would handle a $959 monthly increase in their repayments.

APRA has now flagged an even tougher stress test as house prices hit record highs in both capital cities and regional areas, thanks to record-low interest rates and bosses allowing more professionals to work from home.

Australian borrowers face even tougher lending rules as house prices in big cities and coastal areas surge by more than 30 per cent in a year. The Australian Prudential Regulation Authority has now flagged an even tougher stress test as house prices hit record highs in both capital cities and regional areas, thanks to record-low interest rates and bosses allowing more professionals to work from home (pictured is a Sydney home with a new owner)

Australian borrowers face even tougher lending rules as house prices in big cities and coastal areas surge by more than 30 per cent in a year. The Australian Prudential Regulation Authority has now flagged an even tougher stress test as house prices hit record highs in both capital cities and regional areas, thanks to record-low interest rates and bosses allowing more professionals to work from home (pictured is a Sydney home with a new owner)

Australian borrowers face even tougher lending rules as house prices in big cities and coastal areas surge by more than 30 per cent in a year. The Australian Prudential Regulation Authority has now flagged an even tougher stress test as house prices hit record highs in both capital cities and regional areas, thanks to record-low interest rates and bosses allowing more professionals to work from home (pictured is a Sydney home with a new owner)

Wayne Byres, the chairman of the Australian Prudential Regulation Authority, has hinted there were even stricter rules the banking regulator 'could deploy in the future' as national property prices soar at the fastest annual pace since 1989

Wayne Byres, the chairman of the Australian Prudential Regulation Authority, has hinted there were even stricter rules the banking regulator 'could deploy in the future' as national property prices soar at the fastest annual pace since 1989

Wayne Byres, the chairman of the Australian Prudential Regulation Authority, has hinted there were even stricter rules the banking regulator ‘could deploy in the future’ as national property prices soar at the fastest annual pace since 1989

‘A higher serviceability buffer increases the resilience of households to future shocks, by building additional conservatism into banks’ serviceability assessments,’ it said in a paper.

‘Industry-wide settings for banks’ lending standards are an important part of the macroprudential toolkit.’

In the year to October, median Australian house and apartment values surged by 21.6 per cent to an even more unaffordable $686,339, marking the fastest annual increase since 1989, CoreLogic data showed.

For the first time ever, a full-time worker earning an average salary of $90,329 would be in mortgage stress paying off a typical Australian home, with a 20 per cent deposit.

In the year to October, median Australian house and apartment values surged by 21.6 per cent to an even more unaffordable $686,339, marking the fastest annual increase since 1989, CoreLogic data showed. The Central Coast, an hour's drive north of Sydney, has seen its mid-point house prices climb by 35.4 per cent to $954,330, with values doing particularly well at Chittaway Bay and Woy Woy (pictured is a more upmarket house on the Brisbane Water)

In the year to October, median Australian house and apartment values surged by 21.6 per cent to an even more unaffordable $686,339, marking the fastest annual increase since 1989, CoreLogic data showed. The Central Coast, an hour's drive north of Sydney, has seen its mid-point house prices climb by 35.4 per cent to $954,330, with values doing particularly well at Chittaway Bay and Woy Woy (pictured is a more upmarket house on the Brisbane Water)

In the year to October, median Australian house and apartment values surged by 21.6 per cent to an even more unaffordable $686,339, marking the fastest annual increase since 1989, CoreLogic data showed. The Central Coast, an hour’s drive north of Sydney, has seen its mid-point house prices climb by 35.4 per cent to $954,330, with values doing particularly well at Chittaway Bay and Woy Woy (pictured is a more upmarket house on the Brisbane Water)

APRA considers a debt-to-income ratio of six or more to be mortgage stress, where someone can’t pay their bills after meeting their monthly home loan obligations.

Even with a still-low 2.69 per cent home loan rate, fixed for three years, an average-income borrower would still be paying $2,225 a month to the Commonwealth Bank,  servicing a $550,000 loan. 

Under the new rules, a borrower would have to assess how this borrower, paying off a $686,339 property with a 20 per cent deposit, would cope with their mortgage rate rising by 3 percentage points to 5.69 per cent.

This would see their monthly repayments rise by $959 to $3,184.

APRA said its latest rule change, lifting the stress test buffer from 2.5 percentage points to 3 percentage points, was designed to reduce overborrowing.

‘APRA adjusted upwards its expectation for a sound serviceability buffer in housing lending to mitigate risks from borrowers overstretching in an environment of low interest rates and rising house prices,’ it said.

In some parts of Australian, house prices have climbed by a third in just a year.

The Central Coast, an hour’s drive north of Sydney, has seen its mid-point house prices climb by 35.4 per cent to $954,330, with values doing particularly well at Chittaway Bay and Woy Woy.

Sydney’s median house price rose by 30.4 per cent to $1.334million.

Queensland’s Sunshine Coast saw a 32.5 per cent increase, taking median house prices to $946,405, making it more expensive than nearby Brisbane’s $731,392.

APRA considers a debt-to-income ratio of six or more to be mortgage stress, where someone can't pay their bills after meeting their monthly home loan obligations. The banking regulator has since November 1 required lenders to assess how a borrower would cope with a three percentage point increase to mortgage rates

APRA considers a debt-to-income ratio of six or more to be mortgage stress, where someone can't pay their bills after meeting their monthly home loan obligations. The banking regulator has since November 1 required lenders to assess how a borrower would cope with a three percentage point increase to mortgage rates

APRA considers a debt-to-income ratio of six or more to be mortgage stress, where someone can’t pay their bills after meeting their monthly home loan obligations. The banking regulator has since November 1 required lenders to assess how a borrower would cope with a three percentage point increase to mortgage rates

Victoria’s Mornington Peninsula had a 33.5 per cent increase, taking its mid-point price for a home with a backyard to $979,554, making it marginally more expensive than greater Melbourne’s $972,659.

APRA rules have previously caused a downturn in property prices with a crackdown on interest-only and investor loans in 2017 causing Sydney’s median house value to fall by 15 per cent to $880,000 over two years.

‘The environment was characterised by high and rising housing prices and household indebtedness, subdued income growth and low interest rates,’ it said.

‘APRA’s concern was that bank lending practices, in aggregate, were amplifying these risks, reflected in systemic weaknesses in serviceability assessments and strong growth in higher-risk lending.’

Victoria's Mornington Peninsula had a 33.5 per cent increase, taking its mid-point price for a home with a backyard to $979,554, making it marginally more expensive than Melbourne's $972,659 (pictured is a house on the market at Rosebud)

Victoria's Mornington Peninsula had a 33.5 per cent increase, taking its mid-point price for a home with a backyard to $979,554, making it marginally more expensive than Melbourne's $972,659 (pictured is a house on the market at Rosebud)

Victoria’s Mornington Peninsula had a 33.5 per cent increase, taking its mid-point price for a home with a backyard to $979,554, making it marginally more expensive than Melbourne’s $972,659 (pictured is a house on the market at Rosebud)

Reserve Bank of Australia governor Philip Lowe has hinted the cash rate, now at a record low of 0.1 per cent, could be increased in 2023 instead of 2024 as earlier promised.

But some of the big banks in November has raised their fixed rates twice in a matter of weeks.

ANZ last week joined the Commonwealth Bank, Westpac and National Australia Bank in hiking their fixed rates for one, two, three, four and five-year mortgages for owner-occupiers paying off principal and interest. 

House price increases are vastly outpacing wages, with pay levels in Australia last year growing by just 1.7 per cent.

Source: Daily Mail UK

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