Rate hikes and how it affects how much you can borrow now.
As the RBA delivers its eighth cash rate hike, the fallout has seen the average Aussie’s borrowing capacity take a steep plunge, which affects new borrowers on an average income trying to enter the property market.
The most recent hike of 0.5% has taken the cash rate to an all time high over a decade of 3.1%, adding an average of $91 to monthly repayments on a typical $600,000 mortgage. This means that since April, an average borrower would need to fork out $934 more than they did in April of this year.
According to a recent report by news.com.au, the consequence of the cash rate increases means that banks are now lending prospective buyers significantly less. A full-time worker on an average salary of $92,030 has had their borrowing capacity slashed by $138,900 compared to what they could borrow in April prior to the rate hikes. Thats more than 20% less, and a hard hit to many prospective borrowers trying to get their feet wet in the property market.
An additional analysis by RateCity has revealed that a single professional with no children or other loans could borrow $684,100 in April, yet due to the successive rate hikes, they are now only able to borrow $545,200 – assuming they’ve got their finances in a good place with minimal expenses.
So what does this mean for the average Aussie looking to borrow right now?
It means that buying a unit in an Australian capital city with an average price of $618,375 would now be more than $70,000 out of reach for the average buyer. Not to mention that the average price of a house is a staggering $869,604, with the only capital city within reach for the average worker was Perth, where in the last month the median price for a house dwelling was $585,989.
Buyers looking to enter the property market are now going to have to save more for their deposit, spend less and be significantly more savvy with their debt and finances if they want to buy a home in the current property landscape.
RateCity forged its analysis on the average variable rate with a big four bank lifting to 5.01% in December, up from 2.24% in April, before rates were increased.
“A typical borrower often referred to a couple or young family with more than one income, gives them some hope of escaping the rental churn. This mostly impacts people who are planning to borrow every last cent they possibly can from the bank, or almost every last cent they possibly can.”
Sally Tindall – Ratecity research director
Ms Tindall revealed that banks have shown previously that, of people who are getting loans, around 8% are borrowing at capacity, although it’s not known how many people are borrowing at near-capacity. One rate hike might not plunder a household budget, but eight consecutive hikes have had a significant impact on people’s budgets to the point that they can no longer buy property.
For a double income household with an average of $138,045, with one person on the average full-time wage and the other working part-time for $46,015, their borrowing capacity has plummeted by 22%, from $878,400 in April to $684,700 after the most recent rate increase, an eye-watering decrease of $193,700.
A couple with an even higher combined income who could have purchased a $1.09 million house in April with a 20% deposit can now only borrow for an $855,875 home.
According to Tindall, the decrease in borrowing capacity has a “knock-on effect” on house prices that was already in effect. National house prices fell for the seventh month in a row in November.
This means that not only are people being priced out of homeownership, but the rental market is also becoming strained. With many Aussies needing a place to live, rental demand is high and continues to rise. Nonetheless the rental problem is delivering heat in certain areas more than others, however experts say there is no quick fix. We’re left with a large amount of people struggling for a place to live and unable to afford it.
Looking to get into the property market now and wondering how much you can borrow? Get in touch with our mortgage experts who can help guide you through the process and help find the sharpest rate for your circumstances.
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