Shackled by loans New rules hit borrowers

NEARLY half of all homeowners are now shackled to their mortgage, with refinance rejections up 1250 per cent in less than a year as banks rattled by the royal commission drastically tighten borrowing rules.

Loan sizes are being slashed by 30 per cent, trapping many financially stressed customers including some who have been slugged with “out of cycle” interest rate rises.

House hunters are also being hit by the credit crunch, with dramatic implications for property markets.

The crunch stems from two big shifts in the way banks judge borrowers, experts say.

Expense estimates have been raised substantially — the minimum outgoings for an average household are now assumed to be a third higher, according to the nation’s top bank analysts UBS.

On top of this, granular cost breakdowns must be provided.

After the royal commission revealed in March that expense checks were so lax as to be borderline illegal, new tests have been imposed requiring in some cases detail of weekly, fortnightly, monthly, quarterly and annual spending in as many as 37 categories from alcohol and haircare to shoes and pets, as well as doctor visits.

Four in 10 households would now have difficulty refinancing, said leading industry observers Digital Finance Analytics.

“That means you are basically a prisoner in the loan you’ve currently got,” DFA principal Martin North told the Sunday Territorian.

DFA – which bases its insights on 52,000 household surveys plus data from a range of official sources – estimates 31,000 households’ refinance applications were rejected in July versus 2300 in August last year.

That’s an increase of 1248 per cent.