Are you a “Mortgage Prisoner”?

November 23, 2018

In recent months, the major lenders have been clamping down on credit by implement stricter serviceability criteria.

 

On the back of APRA intervention to curb investor loan growth and on the back of the Royal Commission into Banking; lenders are applying greater scrutiny to daily living expenses on mortgage applications.

 

The result of the implementation of these measures has been profound; however not entirely unwarranted as outline by RBA assistant governor Michele Bullock, In her address to the Ai Group on Monday (10 September[1]):

 

“Australian banks have substantially increased their exposure to housing over this period and housing credit now accounts for over 60 per cent of banks’ loans. So, the Australian banking system is potentially very exposed to a decline in credit quality of outstanding mortgages”

 

So what are the main changes and how to they affect the average mortgage holder?

In a recent article by Jonathon Chancellor there is a great explanation:

 

“Lenders now look thoroughly at the applicant's income and expenses - everything from utility bills, childcare, Netflix subscriptions, education, insurance, telephone and internet, groceries and medical, health and disability requirements. Even beauty treatments”

 

With a change in serviceability, those whom are looking to apply for a new loan may find that they do not qualify under the new criteria.

This has impacted everyone from First Home buyers, changeover buyers as well as investors seeking to refinance existing loans or swap over to another lending provider offering a better rate.

 

Those who do not qualify for the above are effective trapped into their current loan. These persons are referred to as “Mortgage Prisoners”.

 

The biggest changes have been observed in the upgrader/ downsizer and investor figures for June.

 

With a decline in loan volumes, it is unsurprising that house price growth nationally has been weak.

 

According to leading analysts, BIS Oxford Economics[2]:

 

“Prices will also continue to be constrained by the restricted lending environment for investors, and in the cases of Sydney and Melbourne, challenging affordability”

 

So how can you avoid becoming a mortgage prisoner?

 

According to Melissa Browne of A&TA:

 

“If you’re even considering a rate change, a loan swap, comparing banks, buying an investment property or purchasing your own home it’s important to understand we’re in new era of responsible lending. More than ever, it means working with your broker, perhaps months beforehand, to understand the changes and to ensure that not only your income and assets, but your spending, aligns with the criteria required for you to obtain funding.”

 

For further reading please click on the links below:

 

https://www.smh.com.au/money/borrowing/want-a-home-loan-be-a-model-spender-for-three-months-before-you-apply-20180828-p5009a.html

https://www.mortgagebusiness.com.au/breaking-news/12641-rba-flags-mortgage-serviceability-risks

 

https://www.propertyobserver.com.au/financing/loans-and-mortgages/89948-new-financing-restrictions-leading-to-mortgage-prisoners.html?utm_source=Property+Observer+List&utm_campaign=ad28d4e50b-EMAIL_CAMPAIGN_2017_09_28_COPY_01&utm_medium=email&utm_term=0_a523fbfccb-ad28d4e50b-245650525

 

https://www.brokernews.com.au/news/breaking-news/major-bank-tightens-credit-assessment-policy-246741.aspx

 

https://www.smh.com.au/money/borrowing/one-in-five-people-with-a-mortgage-wouldn-t-qualify-today-broker-warns-20180719-p4zscl.html

 

 

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[1] BIS Oxford Economics- RPP Quarterly Market Brief- September 2018

 

 

[2] Source: Newspaper article “ RBA flags mortgage serviceability risks” by Charbel Kadib 11 September 2018

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