Is now the right time to buy? Are you hanging back from purchasing a property?
We all know that it’s been hard to buy a house in the last couple of years. Though it seems to be easing up, many would be buyers are holding back. Is now the time to jump in?
As interest rates have been rising the banks have also been increasing the stress testing rates. What is the stress test rate I hear you ask? When the banks are assessing an application, they assess your ability to pay for the mortgage based on an interest rate. The rate they use is typically 1-2% higher than the current floating rating. The banks are now using a rate of over 7%, with some using a rate as high as 7.35%. While it may seem unfair, this is actually a good thing.
Testing at these higher rates ensures that if (when!) interest rates increase you can still afford the mortgage repayments. There is an obvious downside though. As the interest rate goes up it makes it harder for people to borrow funds as they no longer meet the criteria the banks have set for having an uncommitted monthly income after paying any debts and expenses.
As I’m sure you all know by now, the CCCFA (Credit Contracts and Consumer Finance Act – we wrote about it here if you need a refresher) has put in place some Responsible Lending rules which make it more difficult for the banks to lend money, and the increasing interest rates are further exacerbating the inability for the banks to be able to lend.
It is for this reason that the Credit Bureau Centrix is reporting that the number of applications for new mortgages were down 27% for May compared to last May and the value of lending in April was down 38%. This was reported in a Stuff article on 2 June 2022.
It is not all bad news!!
Our perspective as Mortgage Advisers? Well, there are plenty of people still approaching us for lending. A greater proportion of those approaching us are needing to do more to be able to afford the homes they desire. Asking the questions early and preparing for getting finance can take a little bit of time depending on your situation.
Dropping house prices in some regions are also providing opportunities for buyers. As the house values drop, you may not need to borrow as much to be able to buy the house or investment property you want, which means that the banks increasing the testing rates will not be as big a deal.
Some regions have more properties coming on the market as investors are selling up as the new tax rules mean the property is no longer viable as a cashflow property. Some home owners will also be forced to sell as they cannot afford the increased interest costs as their loans come off the low fixed rates.
If you are ready to purchase now is the time for a bargain. Banks may be more picky about the properties that they provide finance for but as long as you can get insurance and meet the banks magic checks you should be fine. We are here to help you through the process, so get in touch if you’re keen to buy a house!
Got questions? Get in touch with us and we can chat about your best options for paying off your mortgage.