This quarter we have seen the RBA increase the cash rate from 0.10% to the current level of 2.35 % as of September 2022. The financial institutions have also increased their variable rates and fixed rates accordingly.
Recently, I have seen a number of lenders reduce their variable rates for owner- occupied and investment properties. The various reductions are based on the loan to security ratios (LVR’s) with recent rate reduction ranging from 0.10% to 0.15%. As a result, an example of an owner-occupied variable rate with a Loan to Security Value of below 70% would be 3.94%.
It is worth noting that there are a large number of various home loan products available in the market place and whilst media hype is centered around increased home loan rates and the trend is to “shop around for the best deal”, it is wise to discuss the best-suited loan product for your needs with your finance broker.
Also, your finance broker can determine if you, the borrower, meets the lender’s serviceability criteria. With recent increases in the RBA Cash Rate, the lenders “assessment criteria” has also increased. This increase in “assessment interest rate” has affected the borrowers’ loan amount sought.
Borrowers should also be mindful of their household monthly expenses (HEMs). This category is heavily scrutinized by the lenders and living expenses must be realistic and within the HEM’s parameters. Another measurement ‘tool” that lenders are now implementing is the “Debt To Income ratio” (DTI). This is the multiplier of what you wish to borrow versus your annual salary. This recently added assessment tool is also known as a potential ‘handbrake’ to borrowing. This is assessed on a bank by bank basis. The higher the DTI, the greater the concern a lender may have. This new lender’s serviceability tool does not take into consideration the value or equity in the property.