As new mortgage rules kick in, will home prices drop?

suburb near the water going to be affected by new apra rules

The Australian Prudential Regulation Authority (APRA) has announced that future property buyers will have to prove that they can repay their mortgage if rates rise by 3%.

Typically when you apply for a home loan, your lender stress tests your ability to meet loan repayments (also known as home loan serviceability) at a higher rate. This is to make sure that you don’t default on your loan if interest rates go up. 

The new APRA rule increased the standard stress test by 50 basis points, and lenders are expected to increase their own tests by the same number of points. 

The rule will reduce how much you can borrow by about 5%, which means if you have an annual income of $150,000, your borrowing power falls by about $46,000. 

If you have already lodged a home loan application or applied for pre-approval, you won't have to worry about the stress test increase. Many big banks have said they will honour the original stress tests for those who applied before Monday 1 November. 

While this may seem like a slap in the face to potential first home buyers who are struggling to enter the property market, APRA’s new rule aims to reduce the number of people struggling with repayments, especially if the Reserve Bank of Australia increases interest rates. 

"[The move by APRA does make things harder for certain borrowers] but it also flows through to property prices. Fewer people can afford the ridiculous prices that are around now, so unless wages start to catch up, property prices have to slow down. So that’s what they’re trying to do by putting those kinds of higher hurdles in place," said Mozo banking expert Peter Marshall. 

It may sound a bit grim if you are trying to enter the market but with the potential of prices decreasing, it could be worth the wait. 

If you are looking to buy new property soon, check out Mozo’s home loan comparison table to find the right loan for. And if you want to learn more about how to enter the property market check out our home loan guides.

Home loan comparisons on Mozo - last updated 15 August 2022

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  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

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  • Smart Booster Home Loan

    1 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    interest rate
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    Initial monthly repayment
    3.74% p.a.variable for 12 months and then 4.23% p.a. variable
    4.22% p.a.

    Already includes July RBA rate increase. No monthly or ongoing fees. loans.com.au has some of the fastest settlement times on the market. They can meet 30-day settlement timeline so you can start saving thousands, as soon as possible! Mozo award-winning online lender, friendly and local Australian based team.

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  • First Home Buyer Loan Special

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.44% p.a. variable
    3.47% p.a.

    A low variable rate loan for home buyers. No establishment or ongoing fees to pay. 100% offset account included. Allows for unlimited repayments, redraws and flexible repayment options.

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  • Variable Home Loan

    <80% LVR, Owner Occupier, Interest Only

    interest rate
    comparison rate
    Initial monthly repayment
    4.74% p.a. variable
    4.19% p.a.

    Fast online application with no fees. Free extra repayments and redraw facility. Min 20% deposit.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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