HOME > BLOG > Home Loan Advice > Be Conservative when Interest Rates are Low

With low interest rates and increasing confidence in the property market, the mortgage market is also heating up.

With low interest rates and increasing confidence in the property market, the mortgage market is also heating up.

This powerful mix has led regulator authorities to caution lenders to remain conservative in their lending practices so that borrowers don’t get into trouble down the track.

The Australian Prudential Regulation Authority (APRA) has issued a warning to the major banks after conducting an audit on 27 banks and other authorised deposit-taking institutions (ADI’s). APRA has stated that many of the institutions need to put more focus on the borrowers’ capability of making repayments, particularly if interest rates were to increase.

Being able to meet repayments at the moment, with interest rates at 53 year lows could be quite comfortable, but it is likely that interest rates will increase sometime during your loan term. Therefore, lenders need to be able to see that you are able to cater for larger repayments should this occur.

APRA has also stated that there has been an increase in high risk loans of 90 per cent or more of the property’s value over the last three years. Home loans of 90% LVR or more could indicate that borrowers are purchasing properties at a higher price than they anticipated and so the loans that they need to take out could be stretching their finances.

Just as lenders need to show caution, borrowers should also do the calculations on mortgage repayments with each percentage increase in interest rates. If it looks like it could be tight, then increasing your repayments now to get used to having less spare cash and building up a good buffer could be a wise move.