Squeeze looms for home buyers despite property price falls


  • The cost of living is on the rise, making it harder for your clients to save money for a home deposit.
  • Some households who have higher expenses will not be able to borrow as much for a home loan. 
  • Banks are starting to look more closely at home borrowers’ expenses, mindful of higher bills and grocery prices.

As brokers you are fully aware that inflation is making it harder for potential home buyers to save a deposit and reducing how much some can borrow to spend on their next property.

You also know that banks are starting to look more closely at potential borrowers’ expenses when they apply for a home loan, and more scrutiny is likely on the way.

Higher costs for petrol, energy bills, groceries and rent are attributed to a range of issues including Russia’s war on Ukraine, which disrupted global oil and gas supply, to a cold winter that increased demand for heating, and floods on Australia’s east coast that affected vegetable crops. Supply chain disruptions due to the COVID-19 pandemic have also continued to hit, along with increased rental demand from students and workers as the economy picked up after lockdown.

The latest official figures show inflation of 5.1 per cent, and an update due soon may have Commonwealth Bank economists forecast inflation rising to 6.2 per cent.

To stabilise inflation, the Reserve Bank has been lifting interest rates fast, making mortgage repayments more expensive to discourage consumer spending. Higher interest rates also reduce borrowing capacity.

Sydney mortgage broker Anthony Landahl, managing director of Equilibria Finance, has been quoted as saying that the increased cost of living, particularly rising grocery and transport expenses, along with rising interest rates, was affecting how much money home buyers could borrow. While everyone’s situation was different, he estimated the average person’s borrowing power had fallen by 5 to 10 per cent.

“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,” he said. “Their minimum expense requirement has been creeping up.”

Clients were considering their living expenses more carefully and looking at where they could cut back as interest rates climb. Cuts were typically made on recreation and entertainment spending, such as dining out and streaming service subscriptions.

The median house price in Australia has risen by $1000 a day in the last year.

The banks were also monitoring expenses more closely, Landahl said, although there had been no formal policy changes, and he did not think one was needed given that buffers were already 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.”

Brokers are advising buyers to cut their living expenses before they applied for a mortgage. This is one strategy. Another is decreasing clients debt loads, and ensuring the clients credit file is in tip top shape.

If you have clients who need assistance with credit repair, don’t hesitate to contact Princeville Credit Advocates.

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