Aussies struggling to get a foot on the property ladder have been given more bad news - the amount of money would-be property buyers can borrow from the bank has drastically reduced as a result of the Reserve Bank’s (RBA) 13 interest rate hikes.
Aussies on the average full-time income will see their borrowing capacity slashed by $10,500 as a result of this week’s 0.25 per cent hike, and by a total of $201,300 in the past 19 months.
Aussies could previously spend $684,100 on a home loan before the rate hikes began. Now, that’s dropped to just $484,800, according to RateCity research.
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Families of four - where one parent earns the average income and the other works part-time - will see their borrowing power drop by $13,100 from Tuesday’s hike, and by a total of $278,100. The amount they can borrow will have dropped from $878,400 before the hikes, down to just $600,300.
RateCity research director Sally Tindall said the hikes had “decimated” people’s borrowing power.
“Across the 13 hikes, many people’s home-buying budgets have dropped by over $200,000. That’s enough to force some people into reassessing their property-buying plans altogether,” Tindall said.
“If the 13 rate hikes mean you can no longer buy the home you want, go back to the drawing board and see if you can come up with a plan B, or a plan C.”
Despite this, Tindall noted the Australian property market was continuing to post “rise after rise”.
The latest CoreLogic Home Value Index saw an increase of 0.9 per cent in October, accelerating from a 0.7 per cent rise in September.
The median price of a home is now $747,424 across the country. In Sydney, it is $1,121,196, in Melbourne, it is $778,541, and in Brisbane, it is $770,575.
Buyers urged to check borrowing power
Tindall recommended borrowers look at ways to boost their borrowing capacity, such as looking for a lender willing to offer an ultra-low rate or closing down credit card accounts.
“RateCity.com.au research shows that if someone earning the average wage closed down a credit card with a $10,000 limit, they could potentially boost their borrowing capacity by over $40,000,” Tindall said.
She also urged borrowers to check and recheck their borrowing capacity with their bank.
“If you’ve got pre-approval for a loan, give your broker or bank a quick call to double check you’ve still got the green light for the maximum amount you’ve applied for, but also get them to show you just how much your repayments would be if your rate rose even further,” Tindall said.
“The bank might be stress-testing your finances to make sure you can survive a rate hike of up to three percentage points, but it’s worth having a look at what that figure is yourself. Once you see it, you might think twice about taking on that kind of debt.”