Borrowing Capacity Index
February 2023
In March we released our Borrowing Capacity Index for Q3/2023. It shows that the borrowing capacities of Australian individuals and families continue to decline. The main outcomes:
Capacity has declined a further 2.1% since November, in line with our forecast.
We forecast a further drop of 3% over the next 3 months if the RBA increases the cash rate by another 50 bps as is widely forecasted.
In July 2021 a couple with annual family income of $120,000 could borrow up to $785,000. That same couple can now access a maximum $583,500.
According to AFG while there was a small uptick in the December quarter, average loan sizes have decreased by 3.8% nationally since the market peak in the second quarter of FY2022. This decline is more pronounced in the two most populous states: by 4.2% (NSW) and 5.2% (VIC).
Consequences for Borrowers and the Property Market
Borrowing capacities remain 25% lower than at the peak in October 2021 and are at their lowest level in more than 3 years
Many people who borrowed at the market peak may now be “mortgage prisoners”, unable to refinance their home loans due to not being able to re-qualify for the same loan under current lending criteria.
The relatively modest decrease in average loan sizes suggests that many borrowers are taking out riskier loans with substantially less cash flow reserve than when interest rates were lower in early 2022.
Nonetheless we expect that there will continue to be downward pressure on property prices in the more expensive capital city markets.
The Loanscape Borrowing Capacity Index is an expression of the relative change in borrowing capacity for singles and couples among a basket of lenders. It factors in:
variable and fixed interest rates
changes in lending policies of major 1st and 2nd tier lenders
changes in lending regulations mandated by the Australian Prudential and Regulating Authority (APRA)
household expenditure as measured in the Household Expenditure Measurement Survey (HEM)
average family incomes for professionals and non-professionals
changes in lender discounting
Copyright and disclaimer notice
In compiling this index, Carr Financial Services Pty Ltd trading as Loanscape has relied upon information published by a number of external sources. Loanscape does not warrant its accuracy or completeness. To the full extent allowed by law Loanscape excludes liability in contract, tort or otherwise, for any loss or damage sustained by any person or body corporate arising from or in connection with the supply or use of the whole or any part of the information in this publication through any cause.
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Disclaimer: This article is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither Loanscape nor its employees can be held liable for any inaccuracies, errors or omission. All information is current as at publication release and the publisher takes no responsibility for any factors that may change thereafter. Readers are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.
Loanscape has today released its Borrowing Capacity Index for Q2/2024. It shows that the borrowing capacities of Australian individuals and families have stabilised after the sharp decline over the past 2 years. Lower income borrowers continue to be disproportionately impacted by interest rate increases: the family income required to qualify for the average size loan in Australia is 35% higher than 2 years ago.