Opinion A farewell to Shiraz and Wagyu: 155,000 borrowers to feel intense pain
Rarely are legal judgments handed down in more colourful language, and with greater potential to destroy the financial lives of unwitting Australians, as that delivered by Justice Nye Perram on August 19, 2019.
Lenders are, after all, looking to see evidence that borrowers have a “net monthly surplus” left in their household budget after their living expenses are deducted from their income. So, the institute takes a survey of household expenditure last conducted by the Bureau of Statistics in 2015-16, and slices and dices it for different households – by income, location and family composition – and adjusts it for inflation over time.
While lenders are still required to make reasonable inquiries about your living costs and to ask to see some evidence, they can now opt to default to the HEM benchmark figure when assessing a potential borrower’s capacity to pay. Bottom line: you can probably borrow more. In the time between this and the serviceability buffer being belatedly restored to 3 percentage points in October last year, 155,431 first home buyers stormed the market, Bureau of Statistics figures show. And they did so with a Reserve Bank governor telling them not to expect rates to rise until 2024.Instead, in a matter of mere months, Governor Philip Lowe is poised to push these borrowers straight up to and probably beyond their capacity to pay their loans.
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