The Australian Prudential Regulation Authority (APRA) has announced that it will proceed with the proposed changes on its residential mortgage lending guidelines, boosting confidence in the property market.

APRA confirmed that its updated guidance on residential mortgage lending would no longer expect authorised deposit-taking institutions (ADIs) to assess home loan applications using a minimum interest rate of at least 7%. Common industry practice was to use a rate of 7.25%.

“The changes should help more people access the credit they need to buy residential property and set the foundation for a more stable and sustainable housing market,” said Connie Kirk, national executive director of the Urban Development Institute of Australia (UDIA).

APRA received 26 submissions after commencing a consultation in May on proposed amendments to Prudential Practice Guide APG 223 Residential Mortgage Lending (APG 223). Most submissions supported the direction of APRA’s proposals, although some respondents requested that APRA provide new or additional guidance on how floor rates should be set and applied.

APRA’s action would provide a “welcome shot of confidence” for the housing sector amidst the economy crisis, according to the Property Council of Australia (PCA).

“A competitive and well-functioning credit market, subject to prudent regulatory oversight, will help more Australians buy or invest in property, improving housing supply and affordability and support jobs and economic growth,” said PCA Chief Executive Ken Morrison.

The move would also likely boost home buyers’ borrowing power by thousands of dollars.

A family earning a household income of $110,000 would be able to borrow up to $77,000 more, it their loan was assessed at 6.25%, instead of 7.25%, according to industry watcher Sally Tindal.

Tindal also suggested that a single person, in the same scenario, may be able to borrow an extra $50,000.

"Many Australians may suddenly find they can get their home loan approved," said Tindal.