A major bank reveals the big problem stopping young Australians from buying a home and what needs to change to get the property market back on track.

A major bank has blamed existing lending rules for preventing young Australians from buying their first home during a housing crisis.

NAB home ownership chief executive Andy Kerr told a Senate hearing that the rules needed to be changed, with newcomers to property making up less than a third of the market as prices of housing continue to increase.

Banks must now reject home loan applications if their calculations show a borrower would not be able to handle interest rates rising 12 times.

Most interest rate increases are 25 basis points or a quarter of a percentage point.

With financial markets expecting rate cuts in 2025, this would prevent many young Australians from getting a home loan, denying them the chance to own a home as prices continue to rise and locking them out forever off the market.

“A lower servicing reserve for first home buyers could improve their borrowing power,” Kerr told Parliament’s economics committee on Thursday.

“While we believe that housing affordability is a fundamental issue, it is important that all options are on the table now so that we can significantly improve access to credit for Australians in a responsible way.”

Liberal senator Andrew Bragg, opposition leader on home ownership, said the existing service buffer was “damaging first home ownership”.

A major bank has blamed existing lending rules for preventing young Australians from buying their first home (pictured is a Sydney home buyer)

House prices in Brisbane, Perth and Adelaide have soared by double digits over the past year.

High levels of interstate migration have boosted the capital’s real estate markets, in the face of aggressive interest rate hikes, as immigration-driven population growth is causing a housing shortage.

From October 2021, banks in Australia must model a potential borrower’s ability to cope with a three percentage point increase in variable mortgage rates.

But in 2022 and 2023, lending rates soared 4.25 percentage points as the Reserve Bank of Australia raised the cash rate 13 times to a 12-year high of 4.35%.

This was the most dramatic tightening of monetary policy since the late 1980s.

The prospect of rate cuts in 2025 could see the Australian Prudential Regulation Authority review rules it introduced three years ago when the RBA’s cash rate was still at a record low of 0.1 per cent .

“We believe this would be a modest increase in the borrowing capacity of the first home buyer,” Kerr said.

“We believe that any implementation of a change would require further consideration of other credit risks.

“We see an opportunity to work with regulators and the government, in a targeted way, to look at modest changes to the cushion for first home buyers that will provide modest increases in borrowing power.”

Lenders must also consider other liabilities of potential borrowers, including their Higher Education Contribution Plan debt.

“We also welcome the opportunity to work with the government and regulators to consider how changes to the lending framework could help first home buyers, including how HECS debt is assessed,” Kerr said.

Andy Kerr, NAB chief executive of home ownership, has told a Senate hearing that the rules need to be changed

First home buyers made up just 31.2% of borrowers in August, according to Australian Bureau of Statistics loan data.

Kerr is calling for income limits to be raised on the Home Guarantee Scheme, where a first home buyer can buy a home with a 5 per cent mortgage deposit, with taxpayers underwriting the rest of the deposit 20 percent that is usually required for a home loan. to avoid having to pay lenders mortgage insurance.

“To give more people access to this program, NAB supports increasing the current income limits which have remained unchanged since 2020,” he said.

Australia’s major banks expect the RBA to provide relief soon, with the Commonwealth Bank forecasting the first rate cut in December, while NAB, ANZ and Westpac predict monetary easing in February.