Yahoo Finance RBA rate hikes slash borrower budgets by $250,000
The amount Aussies can borrow from the bank has taken a nosedive.
The average Aussie family’s borrowing power has shrunk by nearly $250,000, thanks to the Reserve Bank of Australia’s (RBA) 12 interest rate hikes.
As interest rates rise, the maximum amount a person can borrow from the bank decreases because they have to pay more in interest to the lender.
RateCity research director Sally Tindall said people looking for a new home were dealing with a rising property market, on a shrinking budget.
Also read: RBA deals ‘shock’ $15,000 blow to Aussies as interest rates rise again
Also read: Mortgage stress at highest level since 2008: 1.4 million Aussies ‘at risk’
Also read: Interest rates: How to save $12k by refinancing your mortgage
“After 12 RBA hikes, the maximum amount an average family of four can borrow has dropped by an incredible $247,700 in the space of just 14 months,” Tindall said.
“That’s enough to leave some families’ property-buying plans in tatters, particularly considering prices are now on the rebound, despite the hikes.”
Once this week’s 0.25 per cent hike kicks in, the Big Four banks will likely offer ongoing variable rates over 6 per cent.
Banks typically stress-test customers to make sure they can afford a 3 per cent rate increase - meaning borrowers will now be assessed on whether they can afford repayments at 9 per cent.
“That’s a staggering hurdle to clear, particularly for first-home buyers with limited savings and smaller incomes,” Tindall said.
“If prices don’t come down, potential first-home buyers could end up sitting on the sidelines altogether, unless they can get a sizeable leg-up from their family.”
How much can I borrow now?
RateCity found a family with two kids on a combined annual income of $143,221, could previously borrow $874,500 before the interest rate hikes began.
Once the June rate rise kicks in, the family will only be able to borrow $626,800 from the bank - $247,700 less than before.
In April last year, a single person earning $95,481 with no dependents was able to borrow $681,100 from the bank.
That will now drop to $501,100, meaning their borrowing capacity has shrunk by $180,000 in just over a year.
The calculations assume one parent is working full-time and the other part-time at half the wage. They also factor in an annual pay rise and assume the borrower has no additional debts and minimal expenses.
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to our free daily newsletter.
