Big banks putting first homebuyers at default risk

Major banks are allowing first homebuyers to sign up for mortgages so big they are left paying more than half their net monthly income on loan repayments.

A survey carried out by The Weekend Australian found that the top four banks will lend up to $465,000 to a first time buyer earning a salary of $70,000 a year.

Taking Westpac's current variable mortgage rate of 5.64%, a loan of $465,000 taken over a 30 year term would leave a borrower making monthly repayments of $2,731.

A borrower earning a salary of $70,000 would take home approximately $4,583 a month in after-tax income, leaving a little over $1,850 (or just 39% of net income) - once the mortgage is repaid - for other expenses and living costs.

According to the Australian Bureau of Statistics (ABS), a borrower is suffering mortgage stress when they are paying 30% of their income on a home loan. The loans currently being approved by major banks, according to the survey, mean some borrowers are spending as much as 60% of their disposable income on mortgage repayments.

The survey found that Westpac would lend $465,000 to a first homebuyer earning $70,000, the CBA $444,000 and NAB $380,000 (as well a credit card with an $8,000 limit). The loans are offered on the proviso that borrowers take out mortgage insurance.