Homeowners wanting a cheaper rate elsewhere could find themselves unable to move.
Property owners are being “trapped” in their mortgages as rising rates, falling prices and tough testing of capacity to service a new loan mean they do not have enough equity in their dwellings to switch lenders, say lending specialists.
Under the APRA stress test, every new home loan applicant must show they can afford monthly repayments at 3 per cent more than they are applying for, or the bank’s pre-set floor rate . A floor rate is the minimum rate a borrower will be charged.David Hyman, chief executive of Lendi Group, said: “Many buyers are doing time in a mortgage prison because they don’t qualify for a cheaper loan with their existing or a new lender. It’s a double whammy.
According to CoreLogic, which monitors property markets, Australian capital city dwelling prices fell another 1.4 per cent in September, their fifth successive monthly decline.as rates continue to rise and economic conditions slow.Sally Tindall, research director at research house RateCity, said: “Previously the stress test was 2.5 per cent which meant many borrowers who applied for loans before November 1, 2021, when rates were at record lows, were stress tested at about 5 per cent.
According to Tindall, by next February the average owner-occupier looking to refinance could potentially be stress tested at rates of 8.5 per cent if the cash rate continues to rise in line with forecasts from Westpac. Others likely to be affected are young families seeking more space or households where income has fallen because of illness.
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