Real estate prices may be down, but that doesn’t mean aspiring homeowners are suddenly celebrating.

Lenders are simultaneously reducing the amount people can borrow for mortgages as they factor in higher interest rate repayments and cost of living pressures.

Corey Chamberlain and his partner have just learned from their mortgage broker that their ability to borrow from a small lender has dropped by more than 20%.

That compares to a nationwide decline in house prices of just 2% over the past three months.

“I’m disgusted, really,” Chamberlain told ABC News.

The couple with a young child were first approved for a mortgage of around $975,000 at the end of 2021, then again when they returned for pre-approval earlier this year.

This was when Australia’s official exchange rate was still at 0.1%.

Since May, the Reserve Bank has raised the cash rate to combat soaring inflation hitting the Australian economy.

Today, the RBA is expected to raise the key rate again to 1.85%.

Banks pass the higher cash rate on to borrowers in the form of lending rates, which impacts individuals’ principal loan repayments.

In October, regulator APRA also asked banks to raise the minimum interest rate buffer on loans from 2.5% to 3%.

Despite the new loan environment, the Chamberlains did not expect their estimated loan amount to fall from $975,000 to less than $750,000 when they returned to their broker last month.

The couple’s deposit has not changed since late 2021 and Mr Chamberlain has in fact recently received a small pay rise.

“(Our broker) was pretty open with us saying it was all down to interest rates,” Chamberlain said.

“One hundred percent it’s down to interest rates.”

The couple sold their home in the New South Wales regional town of Newcastle late last year after Mr Chamberlain’s job was moved three hours’ drive south to Wollongong.

They rented there all year as they struggled to buy a new home over their original approved limit of $975,000.

“It’s just the constant battle of everything being overpriced and everything in the price bracket needing rework,” Mr Chamberlain said.

The couple hoped to buy a house with enough bedrooms to expand their young family further. Now that their loan amount is reduced, they feel even more dismayed.

“There is simply nothing in our area that we can afford now,” Mr Chamberlain said.

“Maybe a little cabin.”

They are now considering going to another lender to see if they can get more money, or they will consider waiting a little longer to see if house prices in their area come down.

Corey Chamberlain and his partner are trying to buy a new property in Wollongong. (Provided: Corey Chamberlain)

Rising interest rates are the main factor attributed to the recent slowdown in the real estate market.

CoreLogic’s latest house price data this week showed property values ​​nationwide fell 2% in three months.

This is the fastest rate of decline since the global financial crisis of 2008.

“Obviously higher interest rates are eroding borrowing capacity,” CoreLogic’s Tim Lawless told ABC News.

Prices nationwide are expected to drop 28% to bring the market back to where it was before the pre-pandemic boom.

Currently, CoreLogic is predicting a decline of 12-15% at most by next year.

Space to play or pause, M to mute, left and right arrows to search, up and down arrows for volume.
Play the video.  Duration: 3 minutes

Australian house prices fall at ‘fastest pace’ since 2008(Emilie Terzon)

Mortgage broker Bruce Carr describes the current situation in the real estate market as a “feedback loop” where it is not necessarily easier for people to buy a home as their borrowing capacity declines.

“You get the feedback loop going up and you get the feedback loop going down,” mortgage broker Bruce Carr told ABC News.

“And that’s where the boom and bust cycles come together.”

He hasn’t had any clients whose borrowing capacity has been reduced yet, but he expects that to start happening soon.

Using borrowing calculators, Carr estimates his clients are now able to borrow 11% less today than they were a year ago.

He thinks it’s not just because banks factor in higher interest rates, but also because the rising cost of living is factored into household budgets and therefore into their ability to repay. mortgages.

Annual inflation is currently at a 21-year high of 6.1 percent in Australia.

“We all know inflation fuels this,” Carr said.

In a statement, APRA acknowledged that borrowing capacity is declining.

“The recent reduction in borrowing capacity has been largely due to the increase in official interest rates,” a spokesperson told ABC News.

“All else constant, an increase in interest rates will mean that the maximum amount that households can borrow from their income will decrease.

In a statement, the Australian Banking Association said many factors were taken into account by lenders.

“Each new borrower is assessed on a case-by-case basis due to a wide range of factors including total loan amount, total deposit amount, loan to value ratio or LVR, whether the borrower is an owner occupier or an investor, and an assessment of a borrower’s income and expenses,” an ABA spokesperson said.

“Banks make their own business decisions, but at the end of the day, competition between banks is high, and borrowers need to regularly review their arrangements and seek the best deal.”