“Imagine if you were tested at 5 per cent a year ago,” he said. “That took away borrowing capacity for everyone.
“At that 8 per cent level,you don’t even have the income to service your existing mortgage.”
Amalsadiwala said the situation had left some of his clients who bought house and land packages in a difficult position.
“I have clients who have booked land two years ago and now they don’t have the borrowing capacity to even buy the land,let alone build on it,” he said.
Equilibria Finance Managing director Anthony Landahl said that while the stress test was necessary,it unfairly limited those who needed to refinance.
“Of course there has to be an affordability stress test,but there also needs to be a conversation around letting people refinance when it puts them in a better position,” he said. “The reason it’s a problem is because an individual may be trapped on a rate or a product which is not the best they could be on.
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“They could have a perfect payment history and credit history and they have never missed a payment,but those individuals are being assessed the same way a first home buyer who has never purchased a property before is being assessed.”
Cacho said the issue was not limited to borrowers who took out a loan for their maximum borrowing capacity.
“The only thing that’s changed in a meaningful way is the change in borrowing capacity,” he said. “Even relatively conservative borrowers are going to have problems.
“If they borrowed[at the top of the capacity],they’re going to have no hope of[refinancing] at the moment.”
RateCity modelling showed a Sydney borrower who put down a 10 per cent deposit on a median-priced house in July 2021 would be in negative equity by the end of this year,if forecast price falls come to pass,at -1 per cent equity.
In Melbourne,a borrower in the same situation would have 0 per cent equity. The modelling assumed the home loan was offered at the average variable rate at the time of 2.6 per cent.
A Brisbane borrower would be at 14 per cent equity. However,RateCity director of research Sally Tindall said Brisbane’s price peak had been later,which the modelling did not reflect.
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“Someone who bought in Brisbane closer to the peak might be in a much worse position,” she said. “The Brisbane market peak wasn’t until June ’22 and the drop since[then] has been significant,down 10.7 per cent,in a much shorter space of time.”
Tindall said declining equity could cause borrowers to get a worse deal when refinancing.
“This means if they refinanced their loan today,they would likely have to pay lenders’ mortgage insurance to their new lender which could negate some of the savings they might make from refinancing,” she said.
Someone who took out a loan in July 2021 and borrowed their maximum of $688,800 would now have a remaining debt of $666,671 after making repayments,she said. But they would only be able to borrow $577,000 with a different lender,which could stop them from refinancing.
Amalsadiwala said borrowers could escape a mortgage prison by increasing their borrowing capacity.
He recommended his clients cancel credit cards,pay down other debt such as personal or car loans and pay down their mortgage. Failing that,he recommended trying to cut costs and trying to refinance when rates were lower again.
“Weather the storm,and try and bargain with the existing bank,” Amalsadiwala said.