Cutting the serviceability buffer from 3% to 2.5% could lift national borrowing capacity by $276 billion, new FBAA research showed.
The study, conducted by global consultancy CoreData, found that around 270,000 more Australians could access median home loans, with almost 400,000 first-home buyers aged 25 to 34 standing to benefit—especially those using a 5% deposit for loans under $900,000.
“We’ve said for a very long time that this simple move would make a massive difference to the housing market because we are talking about people who can afford to service these loans,” said Peter White (pictured), FBAA managing director.
Calls to lower the buffer intensified after APRA decided late last year to retain the 3% mortgage serviceability buffer despite higher interest rates, a move that drew criticism from industry leaders.
The buffer requires banks to assess borrowers’ ability to repay loans at their interest rate plus an extra 3%, limiting how much people can borrow even if real rates are already high.
White urged both major parties to back a pre-election commitment to reduce the buffer rate, acknowledging that the Coalition had already expressed support.
“This will, as we have stated before, free mortgage prisoners who are locked into higher rates unable to refinance due to the serviceability rate.”
White also highlighted that lowering the buffer could ease loan stress among current borrowers, enabling more people to refinance and avoid financial hardship.
“The research also confirmed that the reduced buffer may ‘ease loan stress among current mortgage holders…. as more are freed up to refinance.’”
While the research suggested the move could unavoidably push up property prices, White said that outcome was already expected due to broader market forces.
“Any initiative to make housing more accessible has the potential to result in property values increasing due to supply and demand, but the bottom line is that this is a very effective way to help hundreds of thousands of people enter the market, and remain in the market,” White said.
He stressed that despite the risk of price rises, accessibility to homeownership must be the priority.
Reducing the serviceability buffer would not only help first-home buyers but also ease pressure on the rental market, according to White.
“A reduction in the buffer will also ease pressure on the rental market from both ends, allowing more people to buy and ensuring those with existing loans don’t end up renting again due to the current unrealistic serviceability assessment rate.”
FBAA has already provided the research to both the government and opposition, advocating for ongoing, regular reviews of the serviceability buffer.
“We’d also like to see the government of the day regularly review the buffer rate, so it remains relevant, fit for purpose and suits the state of the economy at any given time,” White said.
