Mortgage stress tests differ by $160,000

‘‘Stress-testing’’ by banks is resulting in dramatic differences in how much they will lend to home buyers, a broking firm says.

Banks and other lenders ‘‘stress test’’ mortgage applications by working out if borrowers could cope with rising interest rates, Mike Pero Mortgages chief executive Mark Collins said.

They do this by calculating repayments as though an applicant’s entire mortgage was a floating rate loan at between 1.3 per cent and 2 per cent higher than the current advertised rate.

A look across Mike Pero Mortgages’ panel of lenders showed different stress-test thresholds could affect an applicant’s borrowing power by as much as $160,000.

Stress-testing was the right thing to do, Collins said, as it was part of responsible lending. But the public was largely unaware of how different maximum lending levels could be on any given day for any given customer.

‘‘Each bank has a different appetite for risk, so what we’re seeing is lenders stress-testing anywhere from 7 per cent right up to 8.5 per cent,’’ he said.

The broker surveyed three big banks and three non-bank lenders, using the example of a couple with a combined income of $130,000, a clean credit history, savings of $100,000, and ongoing monthly expenses of $2032, who were seeking a 30-year loan term.

It found the three banks would lend $813,000, $755,000 and $648,000 respectively.

The non-banks would lend $785,000, $754,000 and $670,000.

People seeking loans should shop around, Collins said. ‘‘Every lender is different. In a competitive property market, an extra $160,000 can make a big difference.’’