Pain ahead for leveraged borrowers

A recent survey conducted by Loan Market Group has claimed that almost 20% of Australians would not be able to afford higher loan repayments should rates hike. Approximately 19% of the 600 respondents said any increase in interest rates would push them over the limit.

More than 40 per cent of respondents said they would be able to cope if the RBA raised rates by the projected 2 per cent.

“It should be of concern to the RBA and to the federal Government that 57% of respondents said they can’t afford rates to go up another two percentage points,” Loan Market Group executive director John Kolenda said.

Chris Straw, from aggregation group Niche Professional Services, said the Loan Market Group statistics did not entirely align with recent market conditions.

“Lenders are more prudent than ever and have made approvals harder to achieve,” Mr Straw said.

“There are always going to be pockets of people that will struggle – people that took advantage of the first home owners grant may find themselves pushed to the limit if interest rates rise, for example – but on the whole I think borrowers are better off than they think.

“The only time borrowers would find themselves in real strife is if they lost their job, but figures suggest the threat of rising unemployment is now abating.”

Mr Straw said brokers should take into consideration a customer’s capacity to repay a mortgage considering the threat of rate rises and give them advice as to how they can counteract substantial rate rises.

“Most importantly, brokers should factor in potential rate rises when establishing the maximum rate their customers can afford,” he said.