TOUGHER new lending restrictions have prompted warnings for borrowers to be extra careful when applying for a new mortgage or refinancing.
A crackdown on riskier loans by the banking regulator, the Australian Prudential and Regulation Authority, has resulted in lenders demanding more information about household spending, basing repayment calculations on much higher interest rate assumptions, and being picky when assessing people’s ability to repay — known as loan serviceability.
Yellow Brick Road executive chairman Mark Bouris said a year ago banks were basing their loan serviceability calculations on an interest rate of about 7.15 per cent, but now it had jumped to between 7.5 and 8.25 per cent.
This means that while you might be paying only 5 per cent on a $350,000 mortgage, costing $2046 a month, a bank won’t lend you money unless it’s sure you can afford $2760 a month.
Mr Bouris said some banks were counting just 80 per cent of an investment property’s rental income — rather than 100 per cent — when assessing loan serviceability, and taking longer to approve loans.
Australians often underestimate their spending when applying for mortgages, and lenders are becoming more vigilant by checking income and spending against bank and credit card statements.
“The psyche in this country is people want to max out the amount of money they can borrow,” Mr Bouris said.
“But we are not getting wage rises today other than through the public sector. Discretionary spending is increasing but expenses are getting so close to incomes because wages have been flatlining for five or six years.”
Mr Bouris said people should realistically assess their own expenses before approaching a broker or bank. “Don’t walk in and be unpleasantly surprised. Know what your cash flow is.”
People should also consider cancelling unused credit cards or lowering card limits because the full limit was assessed in mortgage applications, Mr Bouris said.
Oracle Lending Solutions director Angelo Benedetti said banks were demanding more data about potential borrowers’ living expenses.
“It’s getting harder — the banks are requiring more information and APRA is tightening the rules and regulations — they don’t want loans to blow out and affordability to become issues like the GFC was overseas,” he said.
Mr Benedetti said people preparing to borrow or refinance should make sure their credit record was “squeaky clean” with no missed repayments.
“The banks have been told to slow down certain types of lending, which is what they are doing, and they want to make sure there’s more fat when they do a deal in case the interest rates go up,” he said.
published on dailytelegraph.com.au