Three 'practical and tangible' areas the government could ease cost of living crisis
- The FBAA has called for regulatory action to protect borrowers while interest rates are high.
- Lowered serviceabililty buffers and more transparency around rates two of its key points.
- The brokerage association also called for a moratorium on rate hikes for at least three months, however the RBA acts independently of the government.
While the FBAA welcomed Tuesday's RBA decision to keep the cash rate at 4.10%, it is calling on the government to do more to help those under pressure.
It has written to the government with several recommendations that managing director Peter White called 'practical and tangible'.
"These proposed steps won’t magically solve the problem but they will give borrowers a fairer go and ensure banks don’t take advantage of those in a vulnerable position," Mr White said.
This comes as ABS data revealed employee households with a mortgage faced the biggest increase in the cost of living.
The FBAA had three suggestions.
1. Bring the serviceability buffer down
APRA currently recommends banks stress test home loan applicants, including those looking to refinance, with a 3% serviceability test.
That means someone applying for a loan at 6% p.a needs to prove to their lender they would be able to repay it at 9% p.a.
During the current period of high rates, many have suggested a 3% buffer is too high, and in some cases prevents borrowers from refinancing to a lower rate than they are currently on.
In recent months, CommBank, Westpac and NAB have all announced relaxed serviceability tests for certain refinancing applicants, but APRA has maintained it intends to keep the buffer at the full 3%.
The FBAA are calling for APRA to reassess this position and bring the buffer down to 1.5-2%.
Mr White said this would be "more appropriate in today’s economic environment."
2. Banks should be forced to disclose lower rates
Two of the FBAA submissions regarded banks being more transparent about the rates on offer.
Firstly, the FBAA feel banks should be "forced to disclose the introductory borrower rate, as well as the current existing borrower rate."
Currently, the banking code, published by the Australian Banking Association (ABA), requires banks to provide information about interest rates "upon request".
The FBAA feel this is inadequate, and borrowers should always be presented with all the available rates.
It is also calling for a "government enquiry into bank practices around the issue of disclosure, to protect borrowers and vulnerable markets."
3. A further three month pause on rate hikes
Finally, the FBAA is calling for at minimum three more months before any further increases to the cash rate "until the true impact can be evaluated."
Tuesday's monetary policy statement was interpreted by some as the RBA taking a more dovish stance on inflation, and some analysts now think we have reached the peak.
On Thursday Westpac Chief Economist Bill Evans said he is among those who feel the RBA will not raise rates again, and hold steady until the first cut in September 2024.
There continues to be upside risk though: service price inflation continues to grow, while the labour market is still incredibly tight at just 3.5% unemployment.
However, the FBAA feel regardless of any information that comes out in the coming months, an extended pause is necessary to protect borrowers and renters.
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 5.95% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
