Single income $80k can borrow up to $567k after APRA changes

I read this with interest:

https://www.smh.com.au/business/ban...ve-100-000-lending-boost-20190524-p51qx7.html

I had to laugh at the obvious point that a singleton earning $80k cannot possibly afford to pay back a loan of $567k. Ok they can maybe rent out the property but do they then have to move in with the folks.

Am I missing something here or is this just adding fire to the fuel of increased household debt across Australia?

 

I don't know what a single person on 80k can or cannot afford.
But I am looking forward to seeing if this translates into my family having better serviceability. We are a single income family with 6 kids, so our serviceability absolutely sucks. Rediculously so. And its not that we cannot afford it in reality. It's simply that way the banks calculates affordability doesn't match up with the reality of our situation.

 

Such having a quick look at your figures:

Mortgage of $567k has repayments of $2655 per month (using CBA calc).
80k income is approximately $5066 after tax per month (using paycalculator.com.au)

That leaves that single person approximately $2411 each month to spend on everything else.
I know that may not meet what banks and financial gurus say is a good percentage of income going towards a mortgage.
But it doesn't appear completely unreasonable to me that a single person could actually live off $2400 a month after their mortgage has been paid??? Especially as they have no other debt according to this senario.

 

I too think a single person can live on $2400 per month. You'd certainly have to watch your spending though.

 

A repayment of $2655 PCM / $6666 (gross monthly income) = 39%. Its way too high.

What happens if rates go up????

I don't know why APRA aims to save the precious oz property market. Why not let the market correct itself? We've had unsustainable increases for many years. Let the market sort itself out. Same as when the equity market bubble bursts eg. Nasdaq. Its at the end of the cycle surely.

 

Take home pay on minimum wage $37500 per year is about $2800/month
People survive and that and they have to pay rent

 

Renters dont have to pay council and water rates, strata fees, home and possibly contents insurance, they dont pay for HWS that stop working and many other maintenance related items.

 

How much is the dole?

 

It also explains why other parts of the economy are really struggling , especially around domestic spending, everyone is trying to cut down on costs to remain competitive.

 

About $1100 per month depending on circumstance eg how many aliases you're claiming under lol.

 

I just plugged in an income of $80k for a single. Assuming an owner occupier, with no other debt (not even a credit card) and living right on the HEM...

Borrowing capacity is currently about $500k. It's fairly consistent across several lenders, plus or minus about $10k.

If the assessment rate drops by 0.5%, the borrowing capacity increases by about $25k.

Looking forward with APRA's, "Suggested," policy. If you factor in a couple of rate cuts, then a customer rate of 3.5% and a 2.5% assessment buffer to a rate of 6.0%, then the borrowing capacity becomes $567,091 with the CBA. Other lenders will be very close.

Keep in mind this assumes no other debt at all and declaring living expenses to be on the HEM figure. Most lenders would probably question an application with living expenses that specific.

 

Yes but they might pay $350 a week rent.

After paying "rent" (the loan repayment) the OP has about the same amount to live on that the minimum wage owner has to pay all the expenses from. .

 

I dont think your original numbers make sense regarding income and take home pay.
A few years back I was on $22.50 an hour full time , less take home pay than your figures and paying a lot more tax .
And very few people on low incomes would not have a car loan or are paying higher fees in maintenance related isuues with older vehicles.
Not having a car works okay for many that work in CBD , but for many that work in industrial areas with 6-7 am starts there is no public transport.
Many jobs advertise this fast. There is no public transport.

 

Many young people on this income would have HECS payments. That's another $100/week gone. You could certainly do it but I don't think it's ideal. You'd want to be able to pay more than the bare minimum mortgage repayment too. The interest on that big of a loan would be quite significant.

 

why dont you factor in rate increases and see how that holds up! ha ha

 

Rates are constantly being lowered because wages have been stagnating and job security is being reduced. Little wonder small business is struggling with all those consumption dollars being sucked out of the economy with excessive loan repayments.

If interest rates rose a lot of people would be struggling. This is not a sign of a 'good' economy, nor will it help improve it. Borrowing 550k on a 80k income for a PPOR is insane.

 

Heard from my broker that WBC will revise its HEM figures up in June. If that happens even with
rate cut(s) and/or APRA assessment threshold change, it *may* still end up square one at least
with WBC.

 

Raise it by how much though? Greater than CPI?