The CBA is the first lender to raise the criteria for new home loans from 18th June 2021. In brief, they will increase the Assessment Floor Rate from 5.10% to 5.25%. The Assessment or Floor Rate is used by banks to determine the borrower’s ability to meet monthly mortgage repayments.
The assessment rate can differ according to the Loan to Security Value, and if the borrower opts for a fixed rate component.
Lenders are required by the Australian Prudential Regulation Authority(APRA) to ensure that borrowers can repay a mortgage based on the assessment rate.
In addition to the Assessment Rate, lenders have also started to adjust their Household Expenditure Monthly (HEMs) criteria. These factors will no doubt have a impact on curbing the housing market.
It is expected that other financial institutions will follow suit.