Australian borrowers who have children are being offered smaller home loans, due to their inability to meet mortgage repayments.
Since the introduction of the new laws on 15 January for responsible lending, many banks and lending institutions in the country have cut the maximum amount of mortgages being given to families. According to a report, many lenders are now using a universal formula in calculating the additional costs of bringing up children and then factoring it into the loan decision.
Based on calculations by mortgage insurer Genworth, a childless couple with a total income of approximately A$60,000 could avail as much as A$280,000 in loans when applying for an 8.5-percent home loan. However, a couple with the same income and for children applying for similar amount, would only avail a maximum loan of A$229,000.
Such lending practices will make it harder for home borrowers to compare mortgage and refinance once they decide to start a family, said Dean Rushton of Loan Market Group.
“There’s a danger that families could erode the amount that they can borrow to such a degree that they end up trapped,” said Mr. Rushton. "Your borrowing capacity will go backwards."