First home buyers in luck as APRA loosens mortgage restrictions

If you’re looking to secure a home loan for your first property, you’re in luck. 

The Australian Prudential Regulation Authority (APRA) has loosened the restrictions around how mortgage lenders assess a customer’s ability to meet repayments, following the Reserve Bank’s recent interest rate cuts to a record-low 1%

The regulator said banks will no longer be expected to evaluate a home buyer’s borrowing capacity based on a minimum interest rate of 7%, which has been the industry standard. Instead, they’ll be allowed to set their own minimum interest rate floor and make calculations using a recommended 2.5% buffer. 

This means borrowers applying for a 3% mortgage rate can likely expect to be assessed at 5.5% rather than 7%, enabling them to secure bigger loans. 

Under these new rules, first home buyers looking for an average loan of $347,313* may be able to borrow thousands of dollars more than before, even up to $100,000 more, Mozo’s property expert Steve Jovcevski said. 

“With the 7% buffer gone, first home buyers will be able to borrow a lot more and break into the market that they otherwise couldn’t have,” Jovcevski said.

RELATED ARTICLE: New way to borrow takes Australia by storm 

Things are also looking up for first home buyers on another front, with the federal government announcing a First Home Loan Deposit Scheme, which will come into effect on 1 January 2020. 

The First Home Loan Deposit Scheme will give guarantees to 10,000 first home buyers, about 10% of the 110,000 Australians who bought their first home in 2018. 

Single people earning up to $125,000 or couples earning up to $200,000 will be eligible for the scheme if they’ve saved up 5% of the value of the home. 

“These changes - the removal of the 7% buffer and the introduction of the first home buyers scheme - are all positives for the first home buyers’ market,” Jovcevski said.

Mozo property expert Steve Jovcevski says the time is right for first home buyers to dive in

Mozo property expert Steve Jovcevski says the time is right for first home buyers to dive in. 

Steps to buying your dream home

But what should you do to ensure you’ll be able to purchase that property you’ve been eyeing for a while? 

Jovcevski recommended four steps to get you on track to securing your first home loan: 

1. Reassess your borrowing capacity 

“With APRA’s new rules in place, it’s time to go back to your bank and ask them to reassess how much you’re able to borrow for your first home,” Jovcevski said. 

And if your bank has decided not to change with the times, going to different lenders and comparing your borrowing capacity at each could be a good approach, especially if you’re looking to take out a larger home loan. 

2. Avoid Lenders Mortgage Insurance 

There’s little doubt Lenders Mortgage Insurance will eat up thousands of dollars out of your budget. For a first home priced at $500,000, you could be paying $15,960 worth of insurance with a 5% deposit or $8,640 with a 10% deposit.**

So it’s best to avoid paying Lenders Mortgage Insurance where possible, whether that’s applying for the government’s first home buyers scheme or grant, going to your parents and asking them to be your guarantor, or saving up more and being patient in the meanwhile. 

3. Get rid of debt 

Got credit card debt and personal loans that you’ve swept under the carpet till now? Make sure to revisit and repay them before applying for your home loan. Lenders will see any debt - or potential debt - as something that could impact your ability to pay off a home loan, so it could hurt your chances.

“Even if you’ve got a $8,000 credit card limit but don’t owe any money on it, the bank will still assess it as if you own them $8,000 debt, so lowering your credit limits before applying for your first home loan is a must,” Jovcevski said. 

If you’ve got multiple credit cards to deal with, a debt consolidation loan will help combine all your debts into one easy-to-manage debt.

But if you’ve got just the one credit card to pay off and want to escape high interest, a balance transfer could be the way to go, as most balance transfer offers come with a 0% interest period. 

Still unsure how to rid yourself of that nasty credit card balance? Check out our guide to paying off credit card debt

4. Cut back on expenses

With lenders now keeping a close eye on your living expenses, it’s important to hold back on those unnecessary purchases as you start thinking about getting a home loan. 

According to Jovcevski, lenders are looking at household spendings including your telephone bill, AfterPay debts, internet, media streaming subscriptions, and child care. 

“You really need to cut back on your expenses as much as possible in order to borrow as much as you can,” Jovcevski said. He recommends doing so at least 3 to 6 months before you apply for your home loan. 

Keen to purchase your first property soon? Make sure to check out which home loans will suit you before getting into the market.

First home buyer loans - last updated 15 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • 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.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

  • 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. 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.

  • 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.

  • Variable Home Loan

    <80% LVR, Owner Occupier, Interest Only

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    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.


*As of May 2019 according to the Australian Bureau of Statistics.

**Prices taken on 11 July 2019 for a home loan period of up to 30 years.

* 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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