Buffer rate - recent APRA announcement

When you apply for home loan, banks don’t simply assess your borrowing capacity based on their standard variable rate. Instead, they are required to assess your application based on their assessment rate.

This assessment rate is based on the higher of their floor rate or interest rate plus the buffer rate.

Typically a floor rate for a lot lenders is around 5%-5.25%. Buffer rate is currently 2.5%.

Banks do not advertise their assessment rate. So, the general public won’t be aware of what these rates are.

So as the buffer rate increases, as announced by APRA recently to increase the buffer rate to 3%, maximum amount borrowers can borrow will reduce.

However, not all lenders are the same. The assessment rates rules only apply to ADI’s (Authorised deposit taking institutions) like banks and major lenders. There are number of non-bank lenders who don’t fall under the jurisdiction of APRA and won’t necessarily have to use buffer rate to assess your application. That means that a borrower may be able to borrow more from such lenders if they satisfy their credit policy.

That can make a huge difference in you being able to buy the house you like or have to pass on that.

Get in touch with us and we can work out which lender will be more suitable to you.