APRA announces stricter tests for loan eligibility

No matter where you are in your property journey, it pays to keep up to date with the housing market. The also applies in the world of financing and specifically the fates of mortgage interest rates.

Record low interest rates are fuelling very strong median house sales prices, with some suburbs experiencing unprecedented growth in 2021. The cost of money is currently at a record-low, which has helped fuel the housing boom and 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, with APRA announcing banks will be forced to use more cautious interest rate assumptions when assessing new customers. The change is expected to reduce new customers’ borrowing capacity by about 5 per cent, which may take some steam out of the current boom. So where does this leave you?

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%. 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 – Two payslips, a bank statement and the last two tax returns get the job done. 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 the previous three months. State any shares you own and provide a council or energy rates notices of any property you own.
Debts – Declare any loan, such as those for a car, furniture or holiday. Show the last three months of your credit card spending.
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.

This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.