New
lending rules are about to kick in, which will limit the amount people can
borrow from the bank.
From
Monday 1st November, banks must make sure new home loan applicants can repay
their mortgage if rates rise by 3 percent.
The
current ‘stress test’ is 2.5 percent above current rates.
APRA,
the government regulator imposing the rule, has said this will reduce people’s
maximum borrowing capacity by approximately 5 percent.
What will happen to people with
pre-approval or those waiting on their mortgage to settle?
The
big four banks have said loans with unconditional approval that have not yet
settled will still be processed using the old 2.5 percent serviceability test.
The
big banks will also assess customers with pre-approval who have not yet bought
a property using the old stress test, provided they buy and make a full loan
application within 90 days in the case of CBA, Westpac, and NAB and 120 days for
ANZ.
To
be on the safe side, customers yet to buy should check in with their bank
before making an offer on a home, particularly if their circumstances have
changed.
What impact the new 3% mortgage stress
test will have on borrowers
Analysis fromRateCity.com.aushows
for a family of four with an annual household income of $150,000, their maximum
home loan borrowing power could decrease by an estimated $46,900.
For
a single person on an annual income of $100,000, the maximum they can borrow
could drop by an estimated $50,400 under the new increased mortgage stress
test.
These
calculations are based on CBA’s serviceability calculator on a fixed-rate loan.
Note: base variable customers may be able to borrow more. See full assumptions
below.
Impact on a family of 4 looking to
take out a home loan
Household income |
Current borrowing capacity |
New max borrowing capacity |
Difference |
$100,000 |
$570,300 |
$541,600 |
-$28,700 |
$150,000 |
$930,800 |
$883,900 |
-$46,900 |
$200,000 |
$1,292,100 |
$1,226,900 |
-$65,200 |
$250,000 |
$1,636,100 |
$1,553,700 |
-$82,400 |
$300,000 |
$1,949,200 |
$1,851,000 |
-$98,200 |
Impact on a single person taking out a home loan
Single income |
Current borrowing capacity |
New max borrowing capacity |
Difference |
$100,000 |
$692,100 |
$657,200 |
-$34,900 |
$150,000 |
$1,000,500 |
$950,100 |
-$50,400 |
$200,000 |
$1,331,400 |
$1,264,300 |
-$67,100 |
$250,000 |
$1,610,900 |
$1,529,700 |
-$81,200 |
Source:RateCity.com.au.
Notes: Calculations are based on CBA’s
serviceability calculator for a borrower taking out a fixed-rate owner-occupier
loan paying principal and interest with a revert rate of 3.85%.
Household
income assumes one adult working full-time and one adult working part-time
earning half the wage with two dependent children and no other debts.
Minimum
household expenditure is applied, depending on income.
Why has APRA increased the
serviceability buffer to 3%?
APRAhas
increased the buffer in a bid to make sure people can meet their repayments
when rates rise.
From
Monday, banks will need to check if people can repay their loan at 3 percent
more than their current interest rate, or the ‘floor’ rate set by the bank –
whichever is higher.
RateCity.com.au
research director, Sally Tindall, said:
"Anyone intending to bid at an
auction in the next few months should call their bank to double-check how much
they can borrow.
While the big banks have all said
they’ll honour pre-approvals, if your circumstances have changed you might have
to start from scratch under the new rules,” she said.
The last thing you want your new
home loan to do is to fall short.
While buyers who aren’t borrowing
at or near capacity are unlikely to be deterred, this new change could be the
last straw for some first home buyers trying to stretch themselves to get into
the market.
Although the new higher mortgage
stress test may seem frustrating for some people, this move is designed to
protect borrowers when rates will undoubtedly rise.
APRAconsiders loans with a
debt-to-income ratio of six or higher to be risky, and already, 21.9 percent
of new loans hit this benchmark in the June 2021 quarter.
If
debt-to-income levels keep rising we’re likely to seeAPRAintervene
with additional restrictions before the year is out,” she said.
Big four bank serviceability floor rates
CBA |
5.25% |
Westpac |
5.05% |
NAB |
4.95% |
ANZ |
5.10% |
How the big four banks are managing
existing home loan applications:
Note:
the scenarios below assume there are no material changes to the application.
Material changes could trigger a re-start of the application.
|
Customers who have bought property, had their loans approved
and are waiting for settlement. |
Customers with pre-approval but have not yet bought a
property. |
CBA |
Customers will
still be assessed using 2.5% buffer. |
Customer
assessed at 2.5% provided it converts to a full application within 90 days. |
Westpac |
Applications
approved by Thursday 28 October 2021 are assessed using the previous buffer
rate of 2.50%. |
Customers who
received approval in principle by 28 October will be assessed using the 2.5%
buffer if they get full approval within 90 days. |
NAB |
Customers will
still be assessed using 2.5% buffer. |
Customer
assessed at 2.5% as long as it converts to a full application within 90 days. |
ANZ |
Customers will
still be assessed using 2.5% buffer. |
Customer
assessed at 2.5% as long as it converts to a full application within 120
days. |
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Jason Gwerder
Monday, 1 November 2021