The Australian Prudential Regulation Authority (APRA) has announced that it has loosened the serviceability restrictions on home loan mortgage assessments.

It will allow borrowers to lift the size of their loans as lenders will be allowed to provide mortgages up to 14 per cent larger.

In a letter to lenders issued Friday, APRA confirmed its updated guidance on residential mortgage lending.

They will no longer expect them to assess home loan applications using a minimum interest rate of at least 7 per cent or 7.25 per cent which has been the common industry practice.

Lenders will use a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.

AMP Capital chief economist Shane Oliver noted the prudential changes were yet to have a real impact, although they would have helped sentiment at auctions.

“The interest rates cuts and the election result are the main factors,” he said.