Lenders tighten home loan stress tests

Friday 25 June 2010

Article by Mozo

Australian lenders are increasing the size of mortgage rate rises that potential borrowers must be able to handle, making it harder for many to secure home loans.

According to research by the country’s biggest independent broker Mortgage Choice, in early 2009, lenders were applying rate-rise stress tests that ranged from 0.75 per cent to 1.5 per cent, the Daily Telegraph reported.

Such tests now stand at between 1.5 per cent and 2.5 per cent despite a succession of official interest rate increases in recent months, the firm found.

The rises make it imperative for Aussies to compare home loans in search of cheaper options. They mean that with today’s higher average mortgage of $452,000, a borrower must show they can afford as much as $800 a month extra in repayments in order to successfully apply for a home loan.

"Any increase in the assessment rate will take some people out of the market," observed Mortgage Choice corporate affairs manager Kristy Sheppard.

Earlier this week, John Kavanagh, a finance columnist for the Sydney Morning Herald, noted that interest rates on a number of fixed-rate home loans are currently lower than the variable rates of about 7.4 per cent that are being offered by many lenders.

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