Coalition pledges action on home loan serviceability buffer to boost property market access

The Real Estate Institute of Australia (REIA) has praised the Coalition’s election commitment to reform the prudential regulator and lower the serviceability buffer currently used by banks when assessing home loan applicants.

REIA President Leanne Pilkington said the promise aligned with the industry body’s ongoing advocacy work.

“REIA called for a reduction in the serviceability buffer, especially in assisting first-home buyers who are disproportionately impacted by the current lending restrictions,” she said.

The Australian Prudential Regulation Authority (APRA) implemented the three per cent buffer in October 2021 to ensure responsible lending practices across various economic conditions.

Despite the recent cut in official interest rates to 4.1 per cent in February and signs of global economic recovery, APRA has maintained the buffer at its current level.

This means banks must still assess borrowers’ ability to repay loans at an annual rate of approximately 10 per cent, rather than using current market rates of around 7 per cent.

“With the recent rate cut and the expectation of more in 2025, the three per cent buffer is outdated,” Ms Pilkington said. “It is unnecessarily restrictive and limits the borrowing capacity of Australians at a time when affordability challenges persist.”

The Coalition’s policy would particularly target assistance for first home buyers, who the REIA argues face disproportionate hurdles in entering the property market under existing regulations.