APRA has proposed loosening its requirements for authorised deposit-taking institutions (ADIs) to support the government’s First Home Loan Deposit Scheme (FHLDS).
The scheme is intended to make home ownership more accessible to first home buyers, through a government guarantee of eligible mortgage loans for up to 15% of the property purchase price.
As the government guarantee is a “valuable form of credit risk mitigation,” APRA has suggested applying a lower capital requirement to eligible FHLDS loans.
The regulator would do this through adjusting the standing mortgage capital requirements. By recognising both the minimum 5% deposit required of borrowers and the government guarantee of 15% of the property purchase price, APRA would allow ADIs to treat eligible FHLDS loans in a comparable manner to mortgages with a loan-to-valuation ratio of 80%.
This would enable eligible FHLDS loans to be risk-weighted at 35% under APRA’s current capital requirements.
Once the government guarantee ceases to apply to the loan in question – whether a borrower pays down the loan to below 80% of the property purchase price, refinances or uses the property for a purpose that is not within the scope of the guarantee – ADIs would revert to applying the relevant risk weights as set out in APS 112.
APRA has issued a public invitation to give feedback on the proposal during the two-week consultation period which has now commenced. The regulator will then issue its official response, including additional information on implementation for participating ADIs.
Written submissions can be sent to [email protected] before 11 November 2019.