Australian banks are currently required to assess the ability of new borrowers to meet their loan repayments at an interest rate at least 3 percentage points above the rate of the loan proceeds.
Some analysts have suggested that the Australian Prudential Regulation Authority (APRA) ease this rule as the central bank raised its spot interest rate by a whopping 325 basis points to its highest level in 10 years, namely 3.35%, which caused demand for home loans to fall.
“APRA’s view is that the 3% level remains cautious given the potential for further interest rate hikes, high inflation and risks in the labor market,” said Chairman John Lonsdale in a statement.
Adelaide Timbrell, senior economist at ANZ, said lack of borrowing capacity will mean a weak property market this year, predicting another 10% fall in prices on top of a 5.3% drop last year .
“We have three more interest rate hikes until May – that will reduce borrowing capacity and put a lot more downward pressure on the market,” Timbrell said.
