The Risk-Weighted Serviceability Buffer for Brokers

For years, the 3% serviceability buffer was simple: add 3 percentage points to the loan rate and check if the borrower can still afford repayments. But simplicity came at a cost, the flat buffer over-penalised low-risk borrowers and under-penalised high-risk ones. The new risk-weighted model adjusts the buffer based on borrower characteristics, creating a more nuanced assessment.

How risk-weighting works

Under the risk-weighted model, the serviceability buffer varies based on factors including: employment type (PAYG permanent gets a lower buffer than casual or self-employed), income stability (consistent income history vs variable commissions), existing debt load (clean borrowers vs heavily leveraged), and loan purpose (owner-occupied vs investment). The buffer typically ranges from 2% to 4% depending on the risk profile.

Impact on borrowing capacity

For stable PAYG borrowers with low existing debt, the risk-weighted buffer may be lower than the old flat 3%, meaning slightly higher borrowing capacity. For self-employed borrowers with variable income and existing investment debt, the buffer may be higher, reducing capacity. Brokers need to assess employment type and income structure early to set accurate expectations.

CRM implications for pre-qualification

Your CRM's pre-qualification calculator needs updating to account for the variable buffer. Hard-coded 3% calculations are now inaccurate for most borrowers. The calculator should accept employment type, income history, and existing debts to compute the appropriate risk-weighted buffer and provide an accurate borrowing capacity estimate at the enquiry stage.