The decision by the Australian Prudential Regulation Authority (APRA) to maintain its serviceability buffer has sparked strong criticism from mortgage brokers, especially regarding its impact on first homeowners. But Craig Betalli, Senior Broker at Our Broker says first homebuyers will find a way into the market.  

The regulator has been criticised for its decision to maintain the serviceability buffer at 3% for first home buyers[i]. Brokers have strongly reacted, saying the move will hinder younger Australians’ ability to enter the property market. 

What is the serviceability buffer? 

When applying for a loan, lenders assess your income, living expenses, existing debts, and the loan amount. They also evaluate whether you can afford repayments if interest rates rise or your financial situation changes. To account for this, a 3% serviceability buffer is applied. For example, if you’re seeking a loan with a 6% interest rate, the lender must ensure you can still repay if rates increase to 9%.

Craig explains, “At one level, you must acknowledge APRA’s intent with the 3% buffer—it’s there to safeguard borrowers. It could be argued that the benchmark is too high for all borrowers not just new ones.

“Regardless “If the benchmark is reduced—which some might argue is already too high—it’s important to remember that it serves a purpose. It’s designed to protect borrowers under a variety of scenarios.

“Right now, interest rates sit at 5% or 6%, and there’s an assumption they’ll only go down. But what if they go up? If you’re already borrowing at the limit of your affordability, then a lower benchmark could leave new borrowers exposed overexposed.”

Craig adds that the benchmark doesn’t exist in isolation. “It works alongside other regulatory measures like living cost assessments and lending policies, all designed to maintain the security of the entire system. This isn’t just about first-home buyers—it’s about the broader market and the lenders themselves.

“Reducing the benchmark for first home buyers might seem like an easy fix, and it’s something people would welcome. But the reality is that economic dynamics are complex, and such quick fixes could create a false sense of security,” Craig warns.

What’s the advice for first-home buyers in 2025? 

Some experts argue that maintaining the buffer at its current level means first-home buyers will struggle to enter the market across much of the country. However, Craig offers a different perspective, suggesting it’s not all doom and gloom for first-time buyers.

“Rather than feeling defeated, it’s important to change your perspective,” Craig advises. “Whether you’re in Sydney’s eastern suburbs, other parts of New South Wales, Melbourne, Brisbane, or anywhere in Australia, the key is to adjust your expectations and adapt to the realities of the market.”

He adds, “Consider moving further out of the more expensive city areas or to a regional area. It might seem unappealing at first, but this pattern isn’t new. If you look back to the 1960s, those living in inner-city areas or established suburbs of Sydney were the ones who ventured out to places such as the Sutherland Shire, Bankstown, Mount Druitt, or the Hills District. They were the pioneers who moved to areas like Baulkham Hills, turning old farmland into thriving communities.”

First-home buyers need to take full advantage of the benefits available

Craig notes, “There’s much assistance out there for first-home buyers. For instance, you can access loans with 95% financing and no mortgage insurance at standard interest rates.”

Additionally, most states and territories offer stamp duty relief for first-home buyers. For example, New South Wales has no stamp duty on new properties valued at up to $800,000.

“The challenge, of course, is finding properties that fit within those price brackets, but these incentives can provide a significant boost to help first-home buyers enter the market,” Craig said.

“So, change the benchmark for all borrowers if that’s a good policy but trust in the resourcefulness of Australian first home buyers to get into the market with the ample support that already exists.”

For more information about the finance options available, contact your local Our Broker today on 1800 913 677.

 
[i] https://www.apra.gov.au/update-on-apras-macroprudential-settings-november-2024#:~:text=APRA%20has%20confirmed%20it%20will,remain%20at%203%20percentage%20points.