The 3% buffer is here to stay — here's what that means for you.
The Australian Prudential Regulation Authority (APRA) confirmed in late 2023 that the APRA serviceability buffer will remain at 3%. This decision followed APRA’s annual review of macroprudential policy, which considered factors including the cost of living, global economic conditions, and labour market stability. If you’re applying for a home loan or thinking about refinancing, this buffer directly affects how much you can borrow.
What the buffer is
The serviceability buffer is an extra interest rate that lenders add on top of your actual loan rate when assessing whether you can afford repayments. If your home loan has an interest rate of 5%, the lender will test your ability to repay at 8% (5% plus the 3% buffer).
This test exists to protect borrowers. It ensures that if rates rise in the future, or if your personal circumstances change, you still have the capacity to meet your repayments. Use our borrowing power calculator to see how the buffer affects the amount you can borrow at current rates.
Why APRA kept it
APRA maintained the buffer at 3% primarily to act as a safety net. The goal is to prevent borrowers from taking on more debt than they can comfortably manage, particularly given that interest rates can change over the life of a loan.
In making its decision, APRA weighed up cost of living pressures, conditions in global financial markets, and how accessible employment was across the economy. The buffer is designed to give borrowers a buffer against future rate increases and unexpected changes to income or expenses. This is especially relevant given the interest rate movements seen in recent years.
How it affects you
The buffer affects borrowers in different ways depending on their situation.
For people who took out home loans when fixed rates were around 2% and are now rolling onto higher variable rates, the buffer adds further pressure on top of already elevated repayment costs. For new borrowers, the buffer can reduce the amount they’re able to borrow, making affordability harder in higher-priced markets.
For refinancers who have maintained a strong repayment record, some lenders will apply a lower buffer than 3% when assessing your application. In some cases, a buffer as low as 1% may apply. This can meaningfully improve your borrowing capacity when switching lenders.
If the buffer has affected your ability to get approved, a mortgage broker can help. Different lenders calculate serviceability differently, and a broker knows which options are available for your specific situation. Some borrowers who were declined for a home loan at one lender may qualify at another.
Your options
The buffer isn’t necessarily a barrier. Here is how a broker can help you work within it:
Common questions
Q: What is the APRA serviceability buffer and why does it exist?
The APRA serviceability buffer is an extra interest rate — currently 3% — that lenders add to your actual loan rate when testing whether you can afford repayments. It exists to protect borrowers from financial stress if rates rise or their circumstances change. So a 5% loan rate is tested at 8%.
Q: Can I borrow more if a lender uses a lower buffer?
Yes. Some lenders apply a lower buffer, particularly for refinancers with a strong repayment history. A buffer of 1% instead of 3% can significantly increase the amount a lender is willing to offer you. A mortgage broker can identify which lenders offer this flexibility.
Q: Will the buffer rate change in the future?
APRA reviews the buffer rate annually as part of its macroprudential policy assessment. It can increase or decrease based on economic conditions, lending growth, and financial stability risks. It’s worth checking whether any changes are announced that might affect your borrowing position.