Cheap home loan tap set to be tightened

The flood of money to homebuyers being used to push up property prices could soon be plugged as banks look to make it harder to secure a loan.

Hopeful first-home buyer Megan Moon, 27, at her rental home in Red Hill, Brisbane, wants to make sure she can service her home loan. Picture: Lyndon Mechielsen

The flood of money to home­buyers that is being used to push up property prices could soon be plugged as banks look to make it harder to secure a home loan.

New mortgage commitments rose 4.9 per cent in May to hit a record high of $32.6bn, according to the Australian Bureau of Statistics. Low rates have long been credited with this buying frenzy, which has outpaced the number of sellers in the market, pushing property prices up 13.5 per cent last financial year.

Commonwealth Bank was last month the first of the major lenders to move to make it harder to obtain a loan, lifting the serviceability rate which each borrower is assessed against to test if they are able to repay the loan. Each of the other big banks said they were watching and assessing conditions but did not yet have plans to follow the CBA’s lead.

Ray White chief economist Nerida Conisbee said “stress testing” of potential buyers’ payback capacity is becoming more prevalent despite no moves by regulatory bodies to rein in lending or the Reserve Bank to raise rates.

“It does look now like the days of being able to get an ultra cheap home loan are becoming challenging,” Ms Conisbee said.

“The other area of this is serviceability. There are certain criteria that the banks are now putting into place to make it a ­little bit harder for people to get loans, ­particularly compared to where we were ­towards the end of last year.”

Both the national banking regulator, the Australian Prudential Regulation Authority, and the Reserve Bank have distanced themselves from the surging housing market, standing firm that they will step in only if the riskier lending practices again start to reappear in similar levels to those seen in the last housing boom of 2017.

Hopeful first-home buyer Megan Moon, 27, said the decision by the banks to strengthen home loan checks would make it more difficult to get into the ­market but noted it may help her and others live better within their means.

“I’ve been thinking about buying for a while but I have a fear of commitment,” Ms Moon said.

“Buying on my own, I worry about what happens if I suddenly lose my job.

“I don’t think (the additional checks) are necessarily a bad thing. It means you are not spending all your money.”

Loan Market chief executive Sam White said an increase in mortgage rates, stronger than ­expected unemployment figures and other leading indicators ­including inflation and wage growth could indicate a Reserve Bank interest rate rise “sooner rather than later”.

Mortgage Choice broker James Algar said borrowers were looking to refinance and fix their mortgage rates. “People have ­accepted that rates aren’t going down further,” Mr Algar said.

APRA last updated serviceability requirements in July 2019 in the midst of the last national fall in property prices.

The decision allowed banks to assess a borrower’s ability to make repayments on a rate 2.5 per cent higher than that being used for the loan, rather than the 7.25 per cent check that was ­commonly used at the time.