The Finance Brokers Association of Australia (FBAA) has welcomed moves by the Australian Prudential Regulation Authority (APRA) to loosen its deemed serviceability requirements that have resulted in banks rejecting many reasonable loan applications.

FBAA managing director Peter White said times have changed significantly since APRA introduced guidance to authorised deposit-taking institutions (ADIs) to test residential home borrowers against an interest rate of 7.25 per cent, or well above a 2 per cent buffer over the loan’s actual interest rate.

APRA provided its guidance towards the end of 2014 when house prices were increasing and there was strong growth in investor loans.

“The end result was most banks were assessing applications against a rate of 7.25 per cent – way above the interest rate for owner-occupiers and investors.”

On Tuesday the prudential regulator gave the industry four weeks to respond to its proposal to remove the 7.25 per cent requirement, allow ADIs to determine their own floor rate levels while increasing the rate buffer from 2 to 2.5 per cent “to maintain prudence in overall serviceability assessments.”

“Brokers have a duty of care to always assess an individual’s capacity to afford the loan they want as part of our commitment to put customers first. But if the guidance is introduced it simply allows us to help more borrowers into properties that they can afford at a time of low interest rates and subdued house prices.

“When you combine the touted change in APRA guidance with the end of the election cycle and the possibility of the Reserve Bank cutting interest rates in June, there are some positive signs for our housing sector in the months ahead,” Mr White said.

“Just eight weeks ago I supported ASIC and APRA in their criticism of the big banks for blaming tough new interpretations of responsible lending regulations and the royal commission for the credit squeeze and delays in assessing loan applications.

“I will be watching the banks with interest to see who they blame next for their shortfalls after the new APRA guidance is issued.”