Home-owners looking to get a new mortgage or increase their existing one could find themselves being turned down or having to tighten their belts further as the stress testing rates banks use to check people’s servicing ability continue to rise.
But while some agents told OneRoof they don’t think the higher rates will stop people from achieving their property goals, some financial experts say it will inevitably impact the amount people can borrow and therefore what they can buy.
ASB is using the highest figure of 8.15% to stress test borrowers, followed by ANZ at 7.95%, BNZ at 7.5% and KiwiBank at 7.25%.
While Westpac tests mortgage serviceability by adding 2.5 percentage points to the interest rate a borrower wants to take out a mortgage at.
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The levels are a significant rise from the rates used last year which were in the high fives.
This week’s 50 basis point hike in the Official Cash Rate to 3.5% and the strong signals from the Reserve Bank that Kiwis should expect rates to keep climb well beyond a forecast peak of 4% could push the test rates up even further.
“Every time that OCR goes up, the rates jump as well and now we are in the 8%s,” Total Mortgages director Jordan Cameron said.
Some of Cameron’s clients had gone to the bank to renew their pre-approvals when they expired after 90 days only to be told they can borrow less because of the higher test rates.
“It is causing all kinds of headaches, but the lenders need a buffer in there to ensure that the borrowers can service the mortgage they are getting if the rates do increase further.”
CoreLogic chief economist Kelvin Davidson says first home buyers and investors will find life harder. Photo / Peter Meecham
However, to soften the increase, Cameron said some of the banks are tweaking other policies such as allowing people to use more of their income by including more over time etc.
CoreLogic chief economist Kelvin Davidson said higher stress testing rates means people can borrow less money to buy a property and some will even be prevented from being able to buy at all.
“Either way there’s going to be less money sloshing around and that takes a bit more heat out of prices that are already falling.”
Davidson said there is also no way of avoiding it even by switching banks as all of the banks have been raising their test rate and their mortgage rates.
“It’s probably not necessarily just the young first home buyer who is going to find it too hard, the same thing applies to investors who are subject to test rates as well and that’s going to make it harder for them to buy a property and also for existing owner occupiers to move around.”
Davidson expects interest rates to increase further and said this would also likely push test rates so there was no reason to think they would suddenly stop at 8%.
But Harcourts Holmwood agent Zani Polson does not think the increase in the stress testing rate will stop buyers from achieving their goals.
Polson said it might just mean some first home buyers have to tighten their belts to so they can secure their mortgages.
“I think people are just going to have to be a little bit more mindful about where and how they spend their money. Yes, it will have an impact but I don’t think it will be so extreme that people will just chose to rent for the rest of their lives – if you have those goals then you will make sacrifices to get there.”
Ray White Metro Tony McPherson agrees it will not have that big an impact because people have been expecting it.
Historically, if people looked back over the last 20 years 7% was still “at the lower end of the spectrum” and still “a pretty good rate”, he said.
Despite the lending rules changing, McPherson said there are other positive signs such as first home buyers returning to the market, high job security and a good level or supply and demand.
