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RBA rate hikes slash homebuyer budgets by $214,000

RBA governor Philip Lowe and property.
RBA rate hikes have hit potential borrowers hard. (Source: Getty)

The average Aussie family’s home buying budget has shrunk by around $214,600 thanks to the Reserve Bank of Australia’s (RBA) rate hikes, according to new data.

RateCity.com.au found the past seven interest rate hikes had slashed budgets because the amount of money people were able to borrow had shrunk significantly.

Banks need to stress-test home loan customers to make sure they are able to handle a 3 per cent increase to mortgage rates - so the non-stop hikes have hit potential borrowers hard. Increased cost-of-living expenses have also had an impact.

The stress test before the hikes was 2.50 per cent and, as interest rates get higher, the test is harder to pass.

What can people borrow?

RateCity research found a family with two kids, on a combined annual income of $150,000 before tax, could borrow a maximum of $995,800 seven months ago. Once the November rate hike kicks in, they could borrow an estimated maximum of $781,200, which is $214,600 less – a 22 per cent drop since the start of the rate hikes.

However, by May next year, if the cash rate rises to 3.85 per cent, as forecast by Westpac, the same family would only be able to borrow an estimated maximum of $711,700, which is $284,100 less than they could have before the hikes began.

These calculations are estimates and assume one parent works full-time and the other part-time at half the wage. Calculations include an annual pay rise at the start of the financial year.

A single person earning $100,000 before tax in April 2022, with no dependents and no debts, would see the maximum amount they could borrow fall by $161,400 as a result of the past seven RBA hikes (including November) – a 21 per cent drop.

By May next year, that person’s borrowing capacity could drop by a total of $214,900 if the cash rate hits 3.85 per cent. This is a 28 per cent drop in potential borrowing capacity.

RateCity research director Sally Tindall said homebuyer budgets had “taken a hammering” over the past seven months.

“That’s because borrowers are now expected to hand over more of their monthly salary to the bank in interest,” Tindall said.

However, Tindall said falling property prices should make it easier for first home buyers to save for a deposit - which had been one of the biggest barriers to getting into the market.

“However, this won’t automatically make it smooth sailing for these buyers,” she said.

“They’ll still need to show the bank they can repay the mortgage at a rate of over 7.5 per cent – a difficult hurdle on a limited salary.”

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