The amount of money people can borrow to buy a home is set to drop even further as the country’s biggest bank prepares to lift the rate it tests a person’s affordability to 8.6% from early next week and other lenders are expected to follow suit.
Financial experts warn the move could lock even more people out of the property market or at least impact how much they can spend as it is a steep jump from the low 5.8% stress test rate banks were using to test a person’s affordability for a home loan between August 2020 and November 2021.
An ANZ spokesperson told OneRoof the rate is going up to 8.6% next Monday due to it regularly reviewing its stress test rate to ensure it remains responsible and reflects the current interest rate environment.
The bank will continue to honour any existing pre-approvals and approvals finalised before its stress test rate moves up at 9am on 12 December.
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Easy Street Mortgages mortgage adviser Gareth Veale said increasing the stress test rate further effects people’s affordability and what they can borrow.
“It’s just made things a lot harder. The people who don’t have mortgages at the moment, who are struggling to get them then, can’t afford to have them now.“
Based on October’s national median house price of $825,000, buyers with a 20% deposit would have last year been eligible to borrow $660,000, but under the new stress test rate this will plunge to $480,000. So instead of being able to buy a $825,000 house, they can now only spend $645,000.
It also means people who purchased a property between August 2020 and November 2021 when the stress test rate was at its lowest - may be forced to refix at higher interest rate than what their affordability was calculated at.
“People will be paying mortgages now higher than the rate they were tested at – it hasn’t been like that for a very long time and if nothing has changed and if there’s been no improvement to their situation then they will be under a lot of strain at the moment.”
Infometrics principal economist Brad Olsen: “There will be some who are forced to sell or are in a much more vulnerable position now than before.” Photo / Tania White
Squirrel Mortgages founder John Bolton said first home buyers will be the hardest hit by the higher stress test rate because it only puts existing borrowers under pressure if they are trying to top-up their mortgages and get extra money.
“The impact is more on first home buyers trying to get into the property market. With the higher test rate, the bank is going to lend them less money.
“The amount people can borrow is already down 20% on last year – this will just make that more. So maybe they will be down about 25%.”
It will lock some buyers out of the market or force them to look at cheaper houses, he said.
But the rising interest rates are hurting everyone, he said, and when homeowners are refixing, they are seeing their repayments go up about 35%.
“That’s a lot right – incomes are flat or maybe going up a little bit, living costs are going up and at the same time your mortgage repayments are going up by about 35% so that massively eats into discretionary income and means people are really challenged with the way that they are budgeting.”
Infometrics principal economist Brad Olsen said some people who are refixing at the higher interest rates are already on “baked bean” budgets as they are in some cases being forced to find tens of thousands of dollars more to service their mortgages.
To cover those crippling costs, people may have to rethink their lifestyles and get help from the bank or get in lodgers, he said.
“Realistically there will be some can’t take those sorts of steps and there’s certainly greater likelihood that there will be some who are forced to sell or are in a much more vulnerable position now than before.
“It’s quite incredible to think that just over a year ago you had interest rates at 2.2% for a one-year-fixed and now you are being tested at well over 8%. That’s a pretty enormous shift in expectations for what borrowers are thinking about when it comes to just how big their repayment is.”
