Mortgage lending soon to be a smoother playing field

There will soon be better incentive to use a mortgage broker, as home loan costs are due to go up – that is of course, if you use one of of the nation’s major banks.

The Australian Prudential Regulation Authority (APRA) has announced increased risk weightings on home loans, but only for the principal four banks and Macquarie. Customarily, they have been able to set their own mortgage risk weightings, but this will all change when the new regulations take effect on July 1 2016.

This will require the main lenders to have more capital in reserve to insure against potential losses from mortgage difficulties.

What are the numbers?

The aforementioned lenders will have to operate with a risk weighting of at least 25 per cent, which is nearly ten points above the current average. While still being below the 35 per cent which other mortgage lenders regulated by APRA are working with, it is still progress in the right direction.

Martin North, principal of Digital Finance Analytics told The World Today that he believes all the smaller lenders and banks in Australia will welcome the change.

“The mortgage industry was a little bit biased towards the major players because they could hold less capital and, therefore, it brings the centre of gravity back a little further towards some of the smaller players,” he said.

What does this mean for mortgages?

In a release from Westpac Group following the APRA announcement, Chief Financial Officer Peter King said that the new regulations will come at a cost.

“The cost of holding higher capital will inevitably be borne by customers and shareholders,” Mr King said.

An example of this could be increased home loan interest rates or reduced discounts.

And if you’re a mortgage broker?

It’s certainly a good time to become a mortgage broker, as with the increased rates from the major lenders, buyers will likely feel more motivated to shop around for home loans – something a broker is excellently poised to help with.