If you didn’t know it already there is a stress test on home ownership mortgages.
Yup! We’re not talking investment here – we are talking home ownership. If you didn’t know about this, you need to listen up because this is going to put a cap on the amount that you are able to borrow.
Why is this so important?
Well, if there’s a borrowing ceiling then that’s going to really impact the amount that house prices can go up. After all, if homeowners can’t afford to borrow, they can’t afford to buy!
So here’s the stress test:
It’s an interest rate stress test. Lenders are testing borrower’s ability to weather an increase in mortgage rates. The interest rate that their stress testing against is 3% above the rate that will apply when the introductory offer ends.
So for example, if you take out a two year fixed mortgage at 2%, then it goes on to a higher rate after the fixed term ends of say 4.5%. The stress test is going to be done at 7.5%.
The lender is going to see if you can afford a mortgage with a 7.5% interest rate.
Just remember on top of all of that, the maximum that a lender is going to lend to you is five times your household’s salary. So, that again puts another cap on it.
You need to be worried about the stress test and make sure that you can afford mortgage with that higher rate of interest!
So now I want to hear from you!
Did you know about this? Has this caused you concern that you won’t be able to buy the property that you want? Let me know in the comments section below!
If this has been useful for you, don’t forget to share it so that everybody else can get this information too. It’s important! This is going to be one of the key influential factors for why house prices are probably not going to grow at the rate that we’ve seen since the 2008 recession.
P.S. As always, make sure to subscribe to my blog posts by using the red bell in the bottom right hand corner of your screen to get this important information as soon as it’s posted!
Natasha
