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Borrowers face tougher lending test

LENDERS are making it harder for people to borrow for homes by lifting the size of rate rises customers must show they can handle. 

This means borrowers wanting to secure funds for a home purchase or a property investment must be able to show the banks that they could handle the loan repayments if interest rates increased further.

Research by Mortgage Choice revealed that in early 2009, when borrowing costs hit 60-year lows, lenders were applying rate-rise stress tests that ranged from 0.75 per cent to 1.5 per cent.

It is now 1.5 per cent to 2.5 per cent – in other words borrowers must be able to demonstrate their budgets could cope with an interest rate rise of 1.5% to 2.5%

With this new buffer requirement and an average mortgage of $452,000, a borrower has to show they have as much as $800 a month extra. Obviously this will mean some potential property investors will not be able to borrow as much as they had hoped.

And this is evident in the Australian Bureau of Statistics’ housing finance figures, which had been declining for the past seven months.

It is unlikely that this situation will improve for a number of years as the cost of funds for banks is likely to remains high while all the overseas financial and economic problems slowly work their way out.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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