Hundreds of thousands more Australians—particularly those aged 25 to 34—could access an affordable home loan if the serviceability buffer was reduced from 3% to 2.5%, according to new research commissioned by the Finance Brokers Association of Australia (FBAA).

However, a senior broker argues that interest rate cuts, starting with a possible move by the Reserve Bank of Australia in May, would have a more meaningful impact.

The research, conducted for the FBAA by global specialist research consultancy CoreData, found that reducing the serviceability buffer by 0.5% could boost borrowing capacity by $276 billion nationally.

Around 270,000 more people could access median home loans and almost 400,000 first home buyers aged between 25 and 34 would benefit, with those using a 5% deposit seeing the greatest access gains for loans under $900,000.

FBAA Managing Director Peter White AM said both major parties should now make a pre-election commitment to reduce the rate, acknowledging that the Coalition has already done so.

“We’ve said for a very long time that this simple move would make a massive difference to the housing market because we are talking about people who can afford to service these loans,” he said.

Peter noted that the research also confirmed the reduced buffer could “ease loan stress among current mortgage holders….as more are freed up to refinance.”

“This will, as we have stated before, free mortgage prisoners who are locked into higher rates unable to refinance due to the serviceability rate.”

Peter acknowledged that while the research suggested the move could unintentionally push up property values, most economists believe that the housing commitments made by both sides of politics are already likely to have that effect.

“Any initiative to make housing more accessible has the potential to result in property values increasing due to supply and demand, but the bottom line is that this is a very effective way to help hundreds of thousands of people enter the market and remain in the market.”

A reduction in the buffer will also ease pressure on the rental market from both ends according to Peter, allowing more people to buy and ensuring those with existing loans don’t end up renting again due to the current unrealistic serviceability assessment rate.

He said the FBAA had given the research to both the Government and Opposition. “We’d also like to see the government of the day regularly review the buffer rate, so it remains relevant, fit for purpose and suits the state of the economy at any given time.”

Buffer change offers limited relief—May RBA rate cut seen as more impactful by senior broker

Craig Betalli, Senior Broker at Our Broker, the financial services division of Raine & Horne, said that while any policy initiative to support first-home buyers is worth looking at, reducing the serviceability buffer is more a case of “tweaking around the edges” than delivering real affordability.

“You don’t want to make changes that create massive shifts with unintended consequences. Sure, lowering the buffer might increase borrowing capacity—on a $500,000 mortgage, that could mean an extra $25,000. But this doesn’t fundamentally solve affordability,” Craig said.

“The buffer exists to help ensure home loans remain affordable, so reducing it seems counterintuitive.”

He added, “If you lower the buffer and let people borrow more, that doesn’t make homes more affordable—it just increases debt levels.”

Craig said a more significant prospect on the horizon is the possibility of an interest rate cut when the Reserve Bank of Australia’s board next meets on 20 May. “Cutting interest rates has benefits across the mortgage ecosystem in that it improves affordability for existing borrowers and increases borrowing capacity for new borrowers,” he said.

“This is why the more meaningful opportunity for borrowers is a rate cut. While driven by global economic uncertainty, the RBA still has room to support the local economy through further adjustments.”

Considering buying a first home this autumn? Contact Our Broker to find out to start the ball rolling on a home loan preapproval by calling 1800 913 677.