Response to calls for prudent lending
Added on by Etairos Accounting
Banks are increasing the "buffers” they use to assess whether home buyers can afford to take out a mortgage, amid concerns that some borrowers may not be able meet repayments when Australia’s record-low interest rates start to rise.
The tougher loan criteria have been put in place over the past few
months after the Reserve Bank of Australia cut official interest rates
in May and August, taking the official cash rate to just 2.5 per cent.
It comes as financial regulators put pressure on banks to not lower
their lending standards while interest rates are down and amid calls for
tighter credit restrictions to prevent what some commentators see as a
developing house price bubble.
Banks have always put an interest rate buffer on the rate they assess
customers when they look at whether you can afford a home loan or not.
Interest rates are at historic lows and at some point they are going to
start going up and at that point you want to be confident that those
loans are not going to be an obvious burden for customers to service.
However, some banks are slightly more generous in their assessment of
affordability when customers consider fixing their loans for extended
periods – typically for three years or more. Fixed rate loans, offered
at very competitive rates, provide borrowers certainty in their
repayments, lowering their risk profile for the bank.
Ultimately, every customer is unique and as more banks employ wider credit scoring in their lending, including the new increased buffers, it becomes essential that your new loan is placed with a lender that agrees most with your specific financial requirements.
Call Etairos Finance today to discuss the most suitable loan options for your home, investment property, or construction lending.
