Home owners were stress tested to pay 2.5 percentage points above their mortgage rates that were close to rock bottom when banks assessed their ability to service their home loans until late last year. The banking regulator APRA increased the minimum buffer to 3 percentage point by late last year.
But with the interest rate already up 2.5 percentage points since May,any further rate hikes will breach all previous stress tests applied to many recent borrowers.
Economists say recent home owners,especially those who borrowed their maximum amount,will be heading into uncharted territory and even towards mortgage stress.
Commonwealth Bank’s head of Australian economics Gareth Aird said many households will be struggling after today’s rate rise,which he expects to go up by 25 basis points.
“The very recent borrowers are the ones who have not been able to build up buffers. They’re the most vulnerable cohort,and they’re also the one who bought property at its highest prices,” Aird said.
“For a borrower who took the maximum on offer when rates were at their lowest level they basically haven’t been tested to repay at a capacity above 250 basis points. There will be borrowers who are really struggling.”