Rising cost of living is having a strong impact
Rising mortgage rates aren’t the only factor squeezing out potential home buyers. The rising cost of living is making it harder for would-be borrowers to save for a deposit and reducing how much some can borrow for their next home.
Banks are starting to look more closely at potential borrowers’ expenses when they apply for a home loan – and even closer scrutiny is likely in the future, according to a report by The Sydney Morning Herald.
The cost of petrol, energy bills, groceries and rent have spiked this year thanks to pressures ranging from floods on Australia’s east coast to the war in Ukraine. Supply chain disruptions due to COVID-19 have also had an impact, as have increased rental demand from students and workers following the lockdowns.
The latest official data shows inflation of 5.1%, the Herald reported. An update is due on Wednesday, and Commonwealth Bank economists predict inflation could hit 6.2%.
To stabilise inflation, the Reserve Bank of Australia has been pushing interest rates up, making mortgage repayments more expensive to tamp down consumer spending. Higher rates could also reduce borrowing capacity.
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Sydney mortgage broker Anthony Landahl, managing director at Equilibria Finance, told the Herald that the increased cost of living – especially rising grocery and transport costs – was impacting how much money home buyers could borrow. Landahl estimated that the average person’s borrowing power had fallen by 5% to 10%.
“We’re seeing an increase in the cost of living, and we’re seeing that flow through to some of the serviceability calculators of the providers,” Landahl told the Herald. “Their minimum expense requirement has been creeping up.”
Landahl said that clients were scrutinising their living expenses more closely, looking at where they could cut back as interest rates continue to rise. Cuts were generally made on recreation and entertainment spending.
Landahl also said that banks were monitoring expenses more closely, although there had been no formal policy changes – which Landahl said weren’t really needed, given the buffers banks already have in place.
“The impression we’re getting from conversations with assessors … is there’s a keener eye on making sure expenses all make sense and reflect cost-of-living pressures – particularly around some of those inflationary pressure areas like transport, food and groceries,” he said.
Will Unkles, director of Melbourne-based 40Forty FInance, said that rising interest rates were still having the biggest impact on how much people could borrow, but the skyrocketing cost of living was also having an effect. Costlier rent, food, petrol and energy bills reduced the amount people could save towards a deposit.
“It’s hurting people’s ability to save as much as they used to,” Unkles told the Herald. “Anyone getting a mortgage needs to be very mindful of where they spend their money and decide what is a need and what is a want.”
