Increasing rates affecting borrowing capacity
The RBA has increased the cash rate from 0.10% to 1.85% in the last 3 months, with another 0.50-1% expected before the end of 2022. With increased rates comes an increase in the assessment rate, which is applied to new and existing loans to determine an applicant’s ability to meet repayments. The assessment rate is calculated by taking the ‘actual rate’ plus a 3% buffer. So, as rates rise, your borrowing capacity is being negatively impacted.
With borrowing capacities continuing to tighten, we will see a further decline in property prices. At the moment, we are advising our clients to ‘preserve’ their borrowing capacity by securing a pre-approval as soon as possible, as your assessment rate will be based on the current rate, which is then valid for 3 months once you are pre-approved. The same will apply for those refinancing, you can apply for a valuation to at least protect yourself for the next 3 months.
Get in touch if you would like to discuss your options further.