Why it’s now harder to get a big loan

With an unprecedented number of rate increases this year, many mortgage holders have been left feeling the brunt of these increases. Combine this with inflation which has risen by 1% and we have all been left wondering when things will start to ease up.

We recently reached out to our finance guru from The Finance Co. Group, Gabriel who updated us on where the finance market is at and shed some light on what we can expect in the coming months. 

On a positive note, rental market conditions are strongly favouring investors. New analysis has revealed two big reasons why rents, which are already rising steeply, are set to continue increasing. First, the number of properties listed for rent is much lower than pre-pandemic, in both capital cities and regional areas. Which means supply has fallen. Second, Australian Bureau of Statistics data show a significant increase in migrant and foreign student numbers. That means demand is rising. Vacancy rates are low across much of the country and, with population growth returning, rental demand shows little sign of tempering.

If you’re in discussions with your mortgage broker, you may have been told your borrowing capacity has lowered within the past 6 months. The increase in interest rates over the past six months has made it harder for Australians to qualify for a home loan, and made it more important they get help from a mortgage broker. Every rate increase of 0.50 percentage points reduces an average borrower’s maximum loan size by about 5%. Since May, the Reserve Bank has increased the cash rate by 2.50 percentage points – which means the average person’s borrowing capacity has fallen by about 25%. The key words here are ‘average’ and ‘about’ – because borrowing capacity varies not just from person to person but lender to lender. Two banks can offer the same borrower very different maximum loan amounts; sometimes, they might be more than $100,000 apart.

It’s interesting how different buyer groups are responding to the changing market. Home loan activity has fallen since earlier in the year, but demand among first home buyers has held up better than that of other buyer groups. Investors are down 20%, owner occupied down by 10% and first home buyers down by 9.9%. 

If you have any questions regrading your finances or would like to chat to someone about what other options you may have, please reach out to Gabriel and the team at The Finance Co. Group. Now more than ever is the time to let a mortgage broker shop around for you and find you the best option that suits your needs.