Australia’s mortgage market has seen several changes over the years, including tighter lending conditions and the emergence of interest-only loans. By now, these adjustment have already left a mark on Australia’s property market, especially in Sydney and Melbourne, but one question remains unanswered: exactly how have they affected the maximum borrowing capacity for homebuyers?
UBS Research Analyst Jonathan Mott claims that the maximum borrowing capacity in the country is significantly lower than in years prior. He came to this conclusion, after looking at the available mortgage tools on Australian banks’ websites, as reported by Business Insider Australia.
“Using the income-adjusted household expenditure measure (HEM) for each of the major banks, we have attempted to quantify the extent to which borrowing capacity has reduced over time for two examples: an owner-occupier with no existing debt; and an investor with an existing loan.”
“Our methodology was to use the major banks’ mortgage calculators to compare the borrowing power for an Owner Occupier and Investment Property borrower today versus the borrowing power from previous years,” he explained.
In one of Mott’s examples, lending to owner-occupiers have been reduced by as much as 10%. However, in the second scenario, which presents an investor with an existing loan, Mott was able to find a 20% decrease on borrowing capacity.
“We have assumed a family of four, with combined income of $100,000, along with $20,000 bonus and $30,000 rental income. This scenario also includes a $400,000 existing home loan balance. We have also assumed the customer has a $9,000 car loan and $4,000 in credit card limits,” he said.
“In 2015 this customer was estimated to have around $36,000 in living expenses and therefore would have been able to borrow an additional $426,000 for a maximum borrowing capacity of around $838,000 and debt-to-income ratio of 5.6 times.”
“In 2018 this customer was estimated to have around $44,000 in living expenses and therefore would be able to borrow an additional $260,000. This reflects a maximum borrowing capacity of around $673,000 and a debt-to-income of 4.5 times.”
Mott is nearly certain that mortgage lending regulations will become stricter in the days to come, but he is most concerned about the potential for this to burden owner-occupiers.