2023 will be a tough year for Aussies looking to get onto the property ladder, and existing borrowers alike, according to one mortgage expert.
With surging interest rates and many feeling the pressure from the rising cost of living, Rate Money CEO Ryan Gair said borrowers would need to overcome a new set of challenges. Here’s what they are.
Also read: Making a mountain out of the mortgage cliff
1. Aussies will have less borrowing power
Buyers will be able to borrow less as interest rates rise and banks tighten their lending criteria. With interest rates sitting around 5 per cent, Gair said banks were applying a higher buffer, around 7.5-8 per cent.
“We will see banks tighten their lending even further, even to those on higher incomes, and it will make it harder for borrowers to get a home loan,” Gair predicted.
2. Homeowners could face a mortgage prison
Falling property values may lock homeowners with smaller deposits into a ‘mortgage prison’. This is where borrowers don’t have enough equity to refinance, so they are stuck paying their bank’s current interest rate. Otherwise, they risk paying lenders mortgage insurance to a new lender if they don’t have 20 per cent equity.
“If you’re in this situation, call your bank and say you’ve found a better rate with another lender, but you would like to remain with them and negotiate a better deal. The majority will come to the party and give you a better rate so they can keep you as a customer,” Gair said.
3. Fixed-rate borrowers will see higher repayments
Aussies coming off fixed-rate loans will be hit with huge rate rises. According to Gair, borrowers who took out 2-2.5 per cent fixed-rate loans during the pandemic could see their interest rates double to around 5-6 per cent for variable loans.
4. Risk of bad credit history if repayments are missed
Borrowers who miss their repayments also risk damaging their credit score. According to Gair, this could also hurt their ability to refinance and borrow in the future.
“Get on the front foot and contact your lender as soon as possible if you think you may miss a loan repayment and request that it not be marked against your credit report,” Gair said.
“Banks and financial institutions want to work with you to find a solution, so ensure you keep a clear and open line of communication and return any calls or emails you may receive.”