Borrowing power continues to fall - Mortgage Domayne

Borrowing power continues to fall

June 17, 2023

Welcome to the finance update for the week ending 17 June, 2023.

Against all odds, new labour market figures from the Australian Bureau of Statistics released on Thursday, have revealed that the unemployment rate in Australia decreased by 0.1 percentage points in May. Whilst this may sound like good news because it suggests fewer people are unemployed than during the prior reporting period, it is the opposite of what the RBA is hoping to achieve with its interest rate rampage.

In this week’s newsletter, we take yet another look at the impact of interest rate rises on borrowing capacity. Whilst we’ve reported on this before, it remains highly topical as it continues to impact those looking to buy a new home.

Borrowing power shrinks by almost $250K after 12 RBA hikes

Rapidly rising interest rates could see the average family’s maximum borrowing capacity shrink by $247,700, compared to April last year, once the latest RBA hike takes effect.

As interest rates rise, the maximum amount a person can borrow from the bank decreases because they pay more in interest to the lender.

Our research has found a family of four, where one parent works full-time and the other part-time at half the wage, on a combined annual income of $143,221 before tax, will have seen their maximum borrowing capacity drop by $247,700 as a result of the 12 RBA hikes.

These calculations are estimates only. Of course, the amount someone can borrow depends on their personal situation and/or their lender.

For a single person earning the average wage, with no debts, no dependents and minimal expenses, the maximum amount they can borrow from the bank will have dropped by $180,000 in the last 14 months.

The wash up of this is of course that people on the hunt for a new home are dealing with a property market that’s defying gravity, on a borrowing budget that gets smaller by the month.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Standard Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.