If the mortgage rules are relaxed

Relaxed home loan rules may increase the number of Geelong suburbs that were previously affordable by home hunters in the market.

Exclusive analysis by real estate services group Oliver Hume reveals changing a person’s borrowing capability test by reducing the mortgage repairability rate in half, which will make it affordable for six suburbs to buy a home.

If the buffers are relaxed to 1%, the number of suburbs will reach eight, highlighting the affordability challenges faced by Geelong buyers.

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The study found that if the service buffer is reduced to 2.5%, home hunters in Lara, Charlemont, Armstrong Creek, Mount Dunid and Vaughan Ponds could borrow between $22,000 and $26,000 for additional home purchases.

Potential buyers can borrow another $31,000 to buy a Wandana Heights home.

Analysis shows that potential buyers can borrow a home in the suburbs of the area between $5,000 and $30,000.

The suburbs are already one of the most popular suburbs for first-time buyers, but Rory Costelloe, executive director of Villawood Properties, said up to 25% of people will ask for their deposits when they are unable to obtain financing.

“We have buyers looking for home loan calculators and addressing the deposits they can make repayments and put down their financials,” Mr Costelloe said.

He said many people don’t know that Australia’s Prudent Regulatory Authority (APRA) has imposed a 3% security buffer on banks when considering whether people applying for a home loan can repay the money.

If the league wins the federal election, the league will relax rules to approve home loans, claiming that nearly 40% of living buyers cannot get loans due to restrictive buffers.

The buffer was 3% higher in 2021 after rising during the common pandemic, when interest rates were at a record 0.1% and were expected to rise.

Matt Bell, chief economist at Oliver Hume, said he believes lowering buffers is a “good housing policy.”

“The real solution is to supply more housing, but it’s hard to do, it takes time, so while it’s not a huge needle mover, it’s not a reason not to do that,” Bell said.

“We should pull all the leverage we can.”

Mr. Bell said the current 3% tax rate is a penalty for low- and middle-income families.

“They literally save to the point where they save enough money, and they go back to the lender and say, ‘We want to buy’.”

The Real Estate Commission also called on APRA to make mortgage settings easier to become home ownership.

“APRA should consider first-time buyers when shaping regulations to improve ownership of the home, maintain balance and flexibility to adapt to changing conditions,” said Mike Zorbas, CEO of the Real Estate Commission.

Stella Huangfu, associate professor at the University of Sydney, said lowering the buffer will only temporarily increase the borrowing capacity of first home buyers.

“This additional borrowing capacity may drive housing demand, which in turn may raise housing prices,” she said.

Oliver Hume’s research team used ABS census data to obtain average household income, indexed by recent wage growth, and assumed that a couple who did not buy dependants bought at a deposit of 20% with a mortgage rate of 6.05%.

Borrowing capacity is calculated based on the median home price of 25 percentage points in sales over the past 12 months, as well as stamp duty.

With Elizabeth Tilley

Geelong Suburban Affordability Calculator

Source: Oliver Hume. *Suburbs are considered affordable couples based on the average annual income of the suburbs and have no dependents. Borrowing capacity is calculated based on the median home price of 25% of sales in the past 12 months, plus stamp duty and a 20% deposit, with an interest rate of 6.05%.