Borrowers Ditch Credit Cards to Track Mortgage Payments

According to Equifax, borrowers are starting to give up their credit cards to make enough room on their budget to afford mortgage payments.

According to the findings of the credit bureau, borrowers have taken steps to improve their financial situation in order to secure the service of their loans.

One of the most significant changes seen over the past 18 months has been the elimination of credit cards, especially among the typical first-time homebuyer population (under 30).

This came as the value of new mortgages rose 70% in the 18 months ending July 2021.

On average, individual mortgage debt has increased by about 2.7% or $ 13,100 over the same period.

At the same time, total mortgage loan limits have now increased by $ 110 billion, or about 5.6%.

Equifax Managing Director for Advice and Solutions, Kevin James, said there were concerns about this, given that around 190,000 first-time homebuyers have entered the housing market.

“It is good to see that the growth of first-time homebuyers has accelerated thanks to the encouragement of the government’s stimulus packages; Nonetheless, it is worrying that mortgage loan limits are increasing at a rate faster than the ability of most homeowners to repay their loans, ”said Mr. James.

Almost a quarter of newly opened mortgage applications were from first-time buyers.

Meanwhile, refinancers account for 35% of new applications, with revalorizers (26%) and borrowers securing additional funding (16%) taking the remaining portion.

Mortgage limits are inflating at all levels

Based on state data, the largest increase in mortgage limits was recorded in Queensland (13%) and New South Wales (12%).

“Disparities in the cost of living and housing market opportunities in each state continue to be key factors excluding mortgage borrowers from the market, particularly in New South Wales and Victoria,” Mr. James.

Meanwhile, recent lockdowns in New South Wales and Victoria have made many borrowers less enthusiastic than they were at the start of this year when mortgage applications peaked.

“Mortgage application volumes are a strong indicator of future loan underwriting, and economic developments related to the pandemic will continue to drive borrower sentiment for many months to come,” Mr. James said.

“We will be watching volumes closely as the economy reopens in states emerging from lockdowns to see how this spills over to the mortgage market.”

Borrowers Should Face Stricter Lending Standards

The recent Australian Prudential Regulation Authority (APRA) decision to increase the service rate used by lenders to assess mortgage applications is likely to trigger further adjustments to lending criteria.

REA Group Senior Economist Eleanor Creagh said further restrictions would likely target high debt-to-income and loan-to-value ratios.

“These limits would likely come with concessions for first-time homebuyers, although APRA’s forthcoming briefing paper will shed more light,” she said.

Photo by Paul Felberbauer on Unsplash.

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