Interest rates as high as nine per cent — more than double what many borrowers are now paying — are being adopted by banks assessing the repayment capacity of borrowers once rates do rise.
But raising the bar on “mortgage serviceability interest rates” will make it harder for eager first home buyers to get their foot on the property ladder.
Financial regulator “know that low rates are the calm before the storm.” Rates will rise
Every time rates have been low in the past Australian have borrowed to the hilt and then when rates have gone back up there’s been a surge in people missing their home loan repayments.
This is hard for first home buyers to comprehend why they are locked out of home ownership because their bank is assessing their borrowing power using double the actual interest rate.
The financial regulator, the Australian Prudential and Regulation Authority, "APRA" has revealed its crackdown on lending practices announced in December 2014 has resulted in lenders significantly shifting the interest rates used to work out if a borrower can cope with repayments should economic conditions change.
The new data released in the APRA Insight Issue used undisclosed hypothetical situations and then calculated what interest rates they would use to determine whether borrowers could meet their home loan repayments in a much higher interest rate environment.
Some Banks are basing the ability to repay their loan using rates ranging anywhere from more than six per cent up to 9.2 per cent.