Sure rates are low, but some banks are really starting to put the heat on our first home buyers and investors. If you are looking at property investing. Here’s what you need to know.
When you apply for a loan, the bank or financial institution will look at if you can make repayments at not only current interest rate levels, but also at different rates in the future. It’s called home loan serviceability, and it’s your ability to pay your mortgage now and into the future.
Some banks and financial institutions, known as lenders, are currently using 9% (YEP – NINE) to calculate your serviceability.
This increase in “mortgage serviceability interest rates” will undoubtedly affect first-time homebuyers’ chances of getting their foot on the property ladder.
The financial regulator, the Australian Prudential and Regulation Authority, has revealed that this drastic shift in interest rates used to calculate whether a borrower can cope with repayments in an uncertain economic future is a result of its crackdown on lending practices announced in December 2014.
The new data, which was released in the APRA Insight Issue, calculated the rates that lenders would use in a variety of undisclosed hypothetical situations to determine whether borrowers could continue to repay their loans in the event that interest rates increased dramatically.
Banks are evaluating existing mortgage customers’ ability to repay their loan using rates between more than six per cent and 9.2 per cent, and for new customers the rates used by some lenders are over eight per cent. Despite this, AMP chief economist Dr Shane Oliver said he expected the cash rate to fall by another 25 basis points this year to a record-low of 1.75 per cent.
It’s a mine field out there, and it’s important that you get the right advice to ensure you get the property investing loan you need, and can afford.