Home buyers pay off credit cards to borrow more for housing, but rarely take on large debts relative to income
Home buyers are paying off credit cards and personal loans so they can borrow more home loans as property prices rise.
However, industry experts say very high mortgages compared to borrowers’ incomes – who could soon be the subject of a lending crackdown – are not currently prevalent for a rainy day.
Treasurer Josh Frydenberg gave the go-ahead to regulators Tuesday to restrict high debt-to-income loans. The percentage of new home mortgages with debt at least six times income rose from 16 percent a year earlier to nearly 22 percent in the June quarter, according to figures from the Australian Prudential Regulation Authority. The measure does not include mortgage debt such as credit cards.
Mortgage brokers said it was uncommon for borrowers to take out very large debts relative to their income, as many banks would not lend more than six to seven times their earnings.
“There are few lenders who would consider going over six to seven times,” said Theo Chambers, CEO of Shore Financial. “It is possible, but it is definitely difficult.
“People go to the limit as much as possible in order to increase their maximum. Most people hack credit cards, pay out personal loans, and do whatever they can to meet the guidelines. “
He said banks are already careful not to lend too much, especially since the royal financial services commission, and suggested a greater risk in homebuyers borrowing as much as possible and assuming that house prices are going up or down Interest rates do not.
With home prices soaring, some borrowers have tried to maximize their borrowing capacity, either to buy in a specific area or to add an investment property to their portfolio, said Daniel Koutzamanis of Loan Market.
“Not all of them are customers; it wouldn’t be the majority of customers, ”he said.
“If you’re a customer in this category, you have to be a very, very strong candidate to get credit.
“[With a] steady job, you have been in your job for a long time, when you are in a family situation, when husband and wife are employed and you have double income … with minimal debts such as personal loans, credit cards and AfterPay. “
Many lenders are already reviewing applicants’ debt to income ratios, said Rob Lees, director of Mortgage Choice Blaxland, Penrith and Glenmore Park.
Although buyers will borrow more as prices rise, banks will not approve a loan application that is qualified in terms of income and expenditure but has a high debt-to-income ratio, he said.
On the other hand, he noticed an offer from the Bank of Queensland for a low floating rate for borrowers with a debt-to-income ratio of less than six times.
“If people don’t qualify, we need to get them to have more realistic expectations,” he said. “I can’t remember anyone lately [with] the debt to income is over.
“Often … we suggest [applicants] Canceling credit cards is very common. There are very few applications to go through without reducing the credit card limits.
“In some cases they have savings and they still have HECS … some banks will add that to income debt and some will not.”
Andine Mortgage Brokers’ Andrew Kostanski said, for example, his clients are aware of how much they can afford to get a mortgage based on how much they spend on rent, for example.
“I’ve never seen a person say, ‘I want 10 times’ [debt to income]’,” he said.
“Everyone is realistic; everyone knows what they can afford. “
Instead, some customers like first home buyers compromise by looking at a suburb that is a little further from the city, he said.
Chris Foster-Ramsay has seldom seen clients hit a debt limit of six times as they have good borrowing capacity with decent deposits.
“We’re not stopping customers from borrowing because they’re hitting the caps,” Foster principal broker Ramsay Finance said, adding that this might be more common with highly focused investors or first home buyers who they don’t work with so much .
He’s heard that lenders are slightly reducing borrowing for buyers to keep up with the strong growth in the housing market.
“We’re not telling customers that your borrowing capacity is fine, but you can’t borrow that much money because you owed your income,” he said. “I do not see it.”