Interest rate increases and rising property market have slashed what banks will loan borrowers

Data shows the average income earner’s maximum amount they could borrow from a bank as a new applicant has dropped by a third, or more than $200,000, since rates began rising.

An average Australian’s quest for a dream home has been “decimated” by 13 interest rate increases and a strong property market, and their borrowing power has plunged by almost 30 per cent, according to a comparison site.

RateCity.com.au research director Sally Tindall said many Australians would struggle to buy the home they wanted.

“The RBA hikes might have decimated people’s borrowing power, yet in 2023 Australia’s teflon property market has posted rise after rise,” she said.

“Property prices took a tumble in 2022 as the RBA fired off one double hike after another, but a lack of stock, alongside strong demand, has seen prices storm back this year.

“For an average income earner who was planning on borrowing at capacity, Tuesday’s hike is estimated to knock off more than $10,000 from their property buying budget.

“If the 13 rate hikes means you can no longer buy the home you want, go back to the drawing board and see if you can come up with a plan B, or a plan C.”

Australians saving to buy a house will have to save more to buy their dream home because of 13 interest rate hikes and a rampant property market.

RateCity.com.au research has found someone earning the average wage, with no debts, no dependants and minimal expenses, would see the maximum amount they could borrow from a bank as a new loan applicant drop by $10,500, once the latest RBA rate rise takes effect.

That is a total of $201,300 in the past 19 months, as a result of the 13 rate rises, or almost a 30 per cent decrease in their borrowing power. This assumes they are taking out a “big four bank” loan with a 20 per cent deposit and have had a 4.5 per cent pay rise since April 2022.

For a family of four, where one parent works full-time earning an average wage, and the other works part-time at half of this wage, the maximum amount they could borrow from a bank would drop by an estimated $13,100 as a result of Tuesday’s RBA decision.

Across all 13 rate increases, their maximum borrowing capacity will drop by $278,100.

Ms Tindall said people should look at ways to boost their borrowing capacity, such as searching for a lender willing to offer an ultra-low rate, or sometimes it could be as simple as closing down a credit card account.

RateCity.com.au research has shown that if someone earning the average wage closed down a credit card with a $10,000 limit, they could potentially boost their borrowing capacity by more than $40,000.

Ms Tindall said it was important people continued to be active borrowers.

“After four months of cash rate pauses, buyers in the market have gotten used to not having to check and recheck their borrowing capacity with their bank; however, that’s exactly what they should do on the back of this latest hike,” Ms Tindall said.

“If you’ve got pre-approval for a loan, give your broker or bank a quick call to double check you’ve still got the green light for the maximum amount you’ve applied for, but also get them to show you just how much your repayments would be if your rate rose even further.

“The bank might be stress testing your finances to make sure you can survive a rate hike of up to 3 percentage points, but it’s worth having a look at what that figure is yourself.

“Once you see it, you might think twice about taking on that kind of debt.”