If you have a mortgage, you’re going to well and truly be feeling the impact of these interest rate rises that we’re currently experiencing.
But if you don’t have a mortgage and you’re hoping to buy soon or if you’re planning to upgrade your home and increase your mortgage, the rising interest rate will have an impact on your borrowing capacity that you need to be aware of.
Lenders assess your borrowing capacity in various ways. They generally take into account your income, assets, liabilities, credit record, debts, deposit amount and the value of the property.
Lenders are then required to add at least three percentage points buffer to the current interest rate when calculating repayments. So if your current rate is 4.64%, they will use an interest rate of at least 7.64% when doing your assessment. This is done for the purpose of safeguarding you against future interest rises and to minimise the risk of you being unable to make repayments and potentially having to sell your home.
So as interest rates rise, your borrowing capacity is likely to decrease due to the increase in repayments.
We don’t want to put you off your plans to buy a home. We do want you to be aware of the impact of the current changes and to remind you not to rely on old borrowing capacity calculations when you’re house shopping.
