Make borrowing easier

We need to make it easier for Australians to borrow money.
 
Borrowing should be as simple as this: if you can afford the repayments, and you’ve got a good credit record, you get a loan.
 
Unfortunately, that’s not how it works.
 
Banks in Australia are required by the banking regulator, APRA, to maintain a 3 per cent buffer while assessing borrowers’ ability to repay loans. This buffer ensures that banks can assess whether borrowers can still afford to repay loans in the event of an increase in interest rates by 3 per cent above the current rates. If a borrower can’t service a loan with this buffer, they will not qualify for the loan.
What this means is that there are plenty of Australians ready, willing, and able to do their bit to help solve the housing crisis, but they can’t.
 
The buffers were prudent during record low-interest rates, but with inflation edging towards 3 per cent and interest rates increasing by 4.25 per cent in the past two years, they are now outdated and unnecessary.
 
A solution to the housing crisis won’t come from homeowners looking to upgrade their living conditions. It will come from first-home buyers and investors.
 
First-home buyers who purchase their own property instead of renting will free up rental properties for others. Investors add more rental homes to the pool as they create them.
 
We are currently experiencing a decade-low in the number of new housing constructions, and this is a major contributing factor.
 
In practice, the impact of these arbitrary buffers means that to break into the housing market, we must demonstrate that we can service a loan a 9 per cent rather than the 6 per cent interest rate we would pay.
 
What this means is that a borrower needs to demonstrate that they can afford repayments of $5,500 per month when the repayments would come in at just $4,000 per month.
 
That doesn’t make any sense at all. Essentially, it leaves a bunch of people in rentals who could be purchasing their own home but can’t because of some arbitrary 3 per cent buffer rule that’s completely unnecessary.
 
Liberal homeownership spokesman Andrew Bragg put it well last week when he noted that according to CoreLogic’s latest figures a salary of more than $280,000 a year was needed to qualify for a loan to buy Sydney’s median house price of $1.4 million.
 
Senator Bragg said the APRA’s rules had resulted in reduced risk, but they may have also contributed to less growth and fewer first homeowners.
 
‘‘There is a cost of regulation which impacts lending,’’ Senator Bragg said in a speech to The Sydney Institute.
 
‘‘That’s why Labor should be asking APRA to report on the real cost of regulation for first-home buyers.”
 
What I will say here is that it’s not just first-home buyers, we’re talking about.
 
Let’s not forget that there are 11 million houses in Australia and 3.6 million of them are owned by Mum and Dad investors.
 
Investors are most impacted by these arbitrary buffers because they typically have their own mortgage plus an investment mortgage (or two), all of which they must be able to service at a 3 per cent buffer.
 
These investors are not just rich baby boomers. They often work as police officers, teachers, nurses, and electricians – it may be surprising to some, but the average property investor earns just over the average wage.
 
Our politicians say the housing crisis and housing affordability are a priority – I am calling on them to consider what I’ve outlined here. It’s an easy fix!