When searching for a new home, it’s always advisable to keep an eye on the world of financing and specifically the fates of mortgage interest rates.
Whether you’re seeking a mortgage for a first or new home, or you’ve been issued a pre-approved loan by your lender, any pendulum swing in interest rates is likely to affect your buying power.
The cost of money is currently at a record-low, which has helped fuel the housing boom to push values up by more than a fifth in the past 12 months. The Reserve Bank of Australia (RBA) has promised low interest rates until at least 2024, but prospective buyers have suffered a setback on the financial front recently.
The Australian Prudential Regulation Authority (APRA), which holds sway over banks, has ruled that lenders must make it tougher to get a mortgage.
From November 1, lenders must now test your financial position and ensure that you’ll be able to maintain your mortgage payments if rates rise by up to 3%. The previous rule was that lenders needed to assess your ability to repay if interest rates increased by 2.5%. While this sounds like tinkering, it could affect the amount of money you can borrow by up to 5%.
The contingency will help ease the remote possibility of a market collapse if mortgage holders en masse can’t make their payments. More than one in five loans issued in the June quarter were six times the borrowers’ incomes.
If you are concerned about this new APRA ruling, we suggest that you talk to your bank or mortgage broker and discuss the impact on your situation.
For buyers about to seek a home loan, below are some of the essential documents and details you will need to pull together as part of the application. We hope you find our guide useful.
- Identity – You’ll need a driver’s licence and passport. Either maybe be substituted with a Medicare card or birth certificate. Non-citizens must show their visas. A lender will ask for your mother’s maiden name, details of your nearest relative and where you’ve lived during the past three years.
- Earnings – At least two payslips, a bank statement and the last two tax returns will probably be required. You should also declare if you have any companies and ASIC registration.
- Wealth – You’ll need to prove your savings with a bank statement that covers at least the previous three months. State any shares you own and provide council rates notices of any property you own.
- Debts – Declare any loans, such as those for a car, furniture or holiday. Show the last three months of your credit card spending. Even better, pay them off as soon as you can, and close buy now pay later accounts.
- Outgoings – Estimate your day-to-day expenditure and use your credit/debit card statements to indicate spending habits. Show receipts for any rent you pay.
- Dependents – State whether you are responsible for anyone else (e.g. children, spouse) as this impacts on your expenses.
- History – Don’t try to hide any issues. Your credit rating and history are easy to find. You’ll also need to state your work history for the past three years.