Aussies’ borrowing capacities have plunged by almost $300,000, due to the Reserve Bank’s 12 interest rate hikes.
As interest rates rise, the maximum amount someone can borrow from the bank decreases because they have to pay more in interest.
Banks also typically stress-test home-loan customers to ensure they would be able to afford repayments if rates were to rise by a further 3 per cent. This includes refinance applications.
Three of the Big Four banks - CBA, Westpac and NAB - have now lowered the stress test for certain refinancers.
How much can Aussies borrow?
Compare the Market research found a couple with no dependents on a combined $150,000 income, could borrow $980,900 in May before the interest rate hike cycle began. Now, their borrowing power has shrunk to $688,900 - $292,000 less.
It’s a similar story for a family with two kids who earn $150,000 per year. They previously could borrow $868,400 in May last year. Now, that has dropped to $609,000 - a $259,400 decrease.
A single person earning $75,000 with no dependents has seen their borrowing power drop from $511,100 last year, down to $359,000 - a $152,100 difference.
These calculations are based on a variable rate of 2.86 per cent in May last year, increasing to 6.5 per cent.
Options for those struggling with repayments
Compare the Market’s economic director, David Koch, said one option for those struggling with repayments was trying to negotiate a lower rate.
“Just one in three Aussie mortgage holders have tried to negotiate a lower rate this year, according to Compare the Market research,” Koch said.
“Amazingly, 70 per cent of those that called their lender though said they were successful in securing a discount. It shows a simple phone call could end up saving you thousands.”
Koch said there were several other options worth considering, including asking your lender and other providers for financial hardship assistance, temporarily switching to interest-only repayments, requesting a longer-term loan, enquiring about mortgage relief, and contacting a free financial counsellor.