Mortgage lenders in Australia are making it harder for borrowers to apply for home loans by lifting rate size of rate rises the customers must face.
Research conducted by Australia’s largest independent broker Mortgage Choice showed that lenders implemented rate-rise stress tests ranging from 0.75 percent to 1.5 percent in early 2009 when borrowing costs hit 60-year lows.
However, lenders are now implementing rate-rise stress test of 1.5 percent to 2.5 percent despite a series of increases returning borrowing costs to normal levels.
Last year, home buyers had to prove they could handle an increase in repayment of $190 to $380 a month. But with today’s higher average mortgage of $452,000, borrowers must show that they have as much as $800 a month.
"Any increase in the assessment rate will take some people out of the market," said Kristy Sheppard, corporate affairs manager of Mortgage Choice.
Ms. Sheppard said that this was evident in the housing finance figures of the Australian Bureau of Statistics which showed a decline for the past seven months.
It was also found out that some lenders had reduced the proportion of overtime earnings they took into consideration when assessing the ability to repay, from 100 percent down to 50 percent.
All major banks in the country were unwilling to announce what their buffer was, saying that this was a sensitive topic.
However, a spokeswoman from Westpac said that its "buffers do vary from time to time reflecting economic conditions, but our approach is at the tighter end of the market and we are comfortable with our position."
The future interest rate of the mortgage market does not reflect lenders’ increased caution about the future cost of borrowing.