According to the Reserve Bank of Australia’s 13, finding mortgage rates starting with 5 is now a thing of the past for many borrowers.th Interest rate hikes flow to lenders.
Since the RBA raised the cash rate to 4.35% in November, a 12-year high, dozens of lenders have passed on the full 25 basis point increase to variable loan customers.
And while banks continue to fight for quality customers with stable, well-paying jobs, large deposits and low loan-to-value ratios, that’s not the reality for many borrowers, says Sydney Mortgage Choice. said broker Terry Unwin.
“The competition rate will be around 6.14%,” Mr Unwin told realestate.com.au.
“Yes, it is still possible to get a 5 before a mortgage. But that interest rate is offered at an 80% loan-to-value ratio to someone who has paid principal and interest and is owner-occupied. I think people need to be aware that this is going to happen.
“Banks still want deals, but will pay even bigger discounts for the best ones.”
The average new variable home loan reached a new milestone of 6% in September, after hitting a record low of 2.41% in April 2022, according to RBA data.
For borrowers looking to buy for the first time, or upgrade from their first home, in the current environment where many are facing higher interest rates and expensive lender mortgage insurance, a minimum of 20% There is an urgent need to achieve a down payment, Mr Unwin said (LMI).
“First-time home buyers looking to borrow 95% will be penalized again if they don’t qualify for the First Home Guarantee. Based on borrowing 90% to 95%, their interest rate will be 7. %, up to 6%. ”
Even buyers who bought a home within the past five years and are looking to convert from a single-family home to a single-family home are having a hard time coming up with the full 20% deposit.
“Given that many of those properties are units rather than homes, very few are probably worth much more than their purchase price,” she said.
“We haven’t seen as much growth as housing.”
Rising real estate prices and declining borrowing power mean buyers are faced with the challenge of saving for a down payment.Photo: Getty
PropTrack’s latest affordability index reveals that to achieve a 20% down payment on a median-priced home, an average-income household would need to save 20% of their income over 5.5 years became.
“Mortgages are much more expensive, and as a result the amount people can borrow is decreasing,” said Angus Moore, senior economist at PropTrack.
“That means buyers can no longer afford to borrow as much as they used to, and there are far fewer homes that are within their budget.”
At the same time, mortgage repayments are now more difficult than ever, with average-income households spending about a third of their income on mortgage payments to afford a median-priced home.
Housing affordability is at its worst level in 30 years, with rising interest rates and rising property prices weighing on borrowers.Photo: Getty
Mr Unwin said there was a generation of borrowers who had never seen interest rates at this level.
“The biggest blow will be that customers who were locked in at 1.98% for three years will have that stripped away. ‘Lenders may be stuck with.’ ”
Borrowers who find themselves in this situation are known as “mortgage prisoners.” They will no longer be able to borrow the same amount they could have borrowed when interest rates were lower, meaning they are stuck with the mortgage and lender they currently have.
Lenders typically include a buffer of at least 3% in mortgage rates to help borrowers withstand future interest rate increases, but in recent months some lenders have increased the It has eased the buffer for refinancers to just 1%. -record.
Borrowing power is shattered
The reduction in borrowing capacity compared to mid-2022 shows how difficult the situation has become for recent borrowers and first-time home buyers.
The RBA’s 13 rate hikes have reduced borrowing capacity by around 30% on average, but Mr Unwin says that is just the beginning.
“A very general rule of thumb is that you can generally borrow five times your income,” Unwin says. “So, $125,000 [salary] is currently scheduled to borrow between approximately $500,000 and $625,000.
“If you have a $10,000 credit card, the amount you can borrow is reduced by about $22,000. If you have a car loan, your borrowing capacity will be significantly squeezed.
“So I think the really important information is to try and eliminate all other excess debt before you apply for a mortgage, because your credit cards are going to affect you a lot. [buy-now-pay-later accounts], all that. ”
He noted that first home buyers are segmented, with continued strong demand from those with higher incomes and those who rely on parental support in the form of family guarantees.
“The first home buyer [government backed] First Home Guarantees are definitely decreasing and I think part of the reason for that is the income cap. For example, $125,000 won’t get you a mortgage on a property worth $800,000 to $900,000. ”
Australian Bureau of Statistics lending data shows first home buyer loan commitments rose 0.5% in September, following a 4.6% rise in August, but were still down 0.6% year-on-year.
Seasonal rush to hide the impact of interest rate hikes
In total, the average borrower with a $500,000 mortgage has had nearly $1,300 added to their monthly payment since April 2022, assuming the lender forgoes each increase in full.
For a borrower with a $1 million mortgage balance, the rate hike would mean their monthly repayments would have increased by more than $2,500 compared to before the RBA started raising rates.
Average cost of rate hikes from April 2022 onwards:
loan size | First repayment amount | New repayment | Increase ($) | increase (%) |
$500,000 | $2,070.46 | $3,363.53 | $1,293.08 | 62% |
$750,000 | $3,105.68 | $5,045.30 | $1,939.61 | 62% |
$ 1,000,000 | $4,140.91 | $6,727.06 | $2,586.15 | 62% |
But Mr Unwin said the desire of many buyers to lock down properties before Christmas was likely to mask the impact of the latest rate hike.
“They know that if they don’t buy in the next few weeks, it won’t arrive in time for Christmas,” she says.
“I think the demand to still have something secured at this time of Christmas probably outweighed the hesitation about the last rate hike.”
At the same time, increased vendor confidence has led to more homes coming onto the market this spring season.
During this spring shopping season, confidence among vendors returned and the number of listings increased sharply.Photo: Getty
According to the latest PropTrack Listings Report, the number of new listings on realestate.com.au rose 17% in October, an increase of 15.7% year-on-year.
“This year’s spring shopping season has been better so far than last year, particularly in Sydney and Melbourne,” Mr Moore said.
“This reflects improved sales conditions, greater certainty around interest rates, and the fact that prices have increased across much of the country this year compared to last year’s decline.”
He said a tight rental market, strong population growth and rising wages would continue to support real estate demand, although further interest rate increases could have a negative impact on buyer and seller sentiment.