Qualifying for a home loan is harder than before as a result of most lenders increasing the loan qualifier interest rate. This is the rate that the home loan applicant must demonstrate that they can afford when applying for a home loan.
According to information provided by Mortgage Choice 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 higher than the then applicable interest rate.
It is now 1.5 per cent to 2.5 per cent – despite a string of official increases returning borrowing costs to normal levels.
In 2009 home buyers had to demonstrate to their lenders ability to afford an increase in repayments of $190 to $380 a month, based on the then average NSW home loan – $391,000.
With today’s bigger buffer and higher average mortgage of $452,000, a borrower has to show they have as much as $800 a month extra.
“Any increase in the assessment rate will take some people out of the market,” Mortgage Choice corporate affairs manager Kristy Sheppard said yesterday.
According to research conducted by Mortgage Choice, some lenders had cut from 100 per cent to 50 per cent the proportion of overtime earnings they would take into consideration when assessing the ability to repay.
Nurses, police and other emergency service workers were exempt.
The topic is very sensitive. None of the 5 major banks are prepared to provide information on their position with regards to loan qualification rules.
However, a Westpac spokeswoman said its “buffers do vary from time to time reflecting economic conditions, but our approach is at the tighter end of the market and we are comfortable with our position”.
The interest rate futures market do not reflect lenders’ increased caution about the future cost of borrowing.
As of yesterday, the ASX’s interest rate tracker, which is based on futures market trading, was forecasting rates would rise by only 0.5 percentage points over the next 18 months