According to a mortgage expert, 2023 will be a difficult year for Australians looking to move up the property ladder and for existing borrowers.
With interest rates rising and many feeling the pressure of the rising cost of living, Rate Money chief executive Ryan Gair said borrowers would have to overcome a new set of challenges. This is what they are.
1. Australians will have less borrowing power
Buyers will be able to borrow less as interest rates rise and banks tighten their lending criteria. With interest rates around 5 percent, Gair said banks were applying a higher cushion, around 7.5-8 percent.
“We will see banks further tighten their lending, even for those with higher incomes, and it will be more difficult for borrowers to get a home loan,” Gair predicted.
2. Homeowners could face foreclosure
Falling property values can lock homeowners with smaller deposits into ‘mortgage prison’. This is where borrowers do not have enough capital to refinance, so they must pay their bank’s current interest rate. Otherwise, they risk paying lenders mortgage insurance to a new lender if they don’t have 20 percent equity.
“If you find yourself in this situation, call your bank and tell them you found a better rate with another lender, but would like to stay with them and negotiate a better deal. Most will come to the party and give you a better rate so they can keep you as a customer,” Gair said.
3. Fixed-rate borrowers will see higher payments
Australians exiting fixed rate loans will be hit with huge rate hikes. According to Gair, borrowers who took out fixed-rate loans of 2 to 2.5 percent during the pandemic could double their interest rates to around 5 to 6 percent for variable loans.
4. Risk of bad credit history if payments are missed
Borrowers who don’t make their payments also risk damaging their credit scores. According to Gair, this could also hurt your ability to refinance and borrow in the future.
“Go ahead and contact your lender as soon as possible if you think you may miss a payment on a loan and request that it not be flagged on your credit report,” Gair said.
“Banks and financial institutions want to work with you to find a solution, so be sure to keep a clear and open line of communication and return any calls or emails you may receive.”
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