One of the ways lenders are restricted from allowing Australians to take on too much debt is that, when they assess a borrower for a home loan, they must consider whether that person can meet repayments for the loan at a higher rate.
Currently, the serviceability buffer is 3 per cent. (Before COVID, this buffer was set lower at 2.5 per cent.)
A lower buffer means more people can pass through the hurdles set to get a home loan.
“Higher buffers strengthen financial system resilience, but can restrict refinancing options, particularly in a rising rate environment,” Fitch Ratings said.
“Conversely, more flexible buffers improve access to credit, but increase credit risk, especially for marginal borrowers.”
Fitch Ratings notes that while this 3 per cent buffer requirement applies to banks, non-bank lenders adopted a more flexible…
