Interest rates have been moving again, and if you’re thinking about buying a home, refinancing or finally starting those renovations, you might be wondering:
Can I still afford to do it?
It’s a completely reasonable question.
Changes to interest rates can affect repayments and borrowing capacity, but they don’t automatically mean your plans need to go on hold.
The important thing is understanding what the changes mean for your individual circumstances.
What’s Happening With Interest Rates?
After a period of changing interest rates, borrowers are once again having to factor higher lending costs into their plans.
When interest rates increase, it can affect both existing borrowers and people applying for a new loan.
For existing borrowers on variable rates, an increase may mean higher repayments.
For someone looking to borrow, higher rates may also affect how much a lender is prepared to lend because lenders need to assess whether you can comfortably afford your repayments.
But this is where it’s important not to assume that a change in rates automatically means you can’t borrow.
Can I Still Buy a Home?
Potentially, yes.
Your borrowing capacity isn’t determined by the cash rate alone.
A lender will consider a range of factors, including:
- Your income
- Existing loans and credit cards
- Living expenses
- Number of dependants
- Deposit or available equity
- The proposed loan amount
- The lender’s individual servicing requirements
And importantly, different lenders can assess the same borrower differently.
If you checked your borrowing capacity six or twelve months ago, it’s worth running the numbers again rather than assuming the answer will still be the same.
Your income, savings, debts, property prices and lender policies may all have changed during that time.
Will Higher Rates Reduce My Borrowing Capacity?
They can.
Lenders don’t simply assess whether you can afford the interest rate being offered today. They generally assess your application using a higher rate to make sure there is a buffer if circumstances change.
As rates change, this can affect the maximum amount some borrowers are able to access.
However, borrowing capacity isn’t identical across every lender.
One lender saying you can borrow a particular amount doesn’t necessarily mean every lender will reach the same figure.
This is one of the reasons comparing lenders can be particularly important when borrowing capacity is tight.
I Already Have Pre-Approval. Does a Rate Change Affect It?
It can.
A pre-approval isn’t necessarily a guarantee that you will be able to borrow that exact amount indefinitely.
If interest rates, your financial circumstances or a lender’s policies change between receiving pre-approval and purchasing a property, your application may need to be reassessed.
If you have a pre-approval and rates have changed since it was issued, speak with your broker before making an offer or signing a contract.
It’s much better to confirm your numbers first.
Can I Still Borrow to Renovate?
Yes, depending on your circumstances.
There are several ways renovations may potentially be funded, and the right structure depends heavily on the project.
For smaller renovations, this could involve accessing available equity or increasing an existing home loan.
For significant structural renovations or extensions, construction-style finance may be more appropriate, with funds released progressively as work is completed.
The amount you can access will depend on factors including your income, existing debts, available equity, property value and the proposed works.
So if you’ve been planning a renovation and are now thinking, “Rates have gone up, maybe we can’t do it anymore,” don’t cancel the plans based on that assumption alone.
Run the numbers first.
Should I Wait for Interest Rates to Change Before Buying?
This is probably one of the biggest questions borrowers ask when rates are moving.
Unfortunately, nobody can know with certainty what interest rates or property prices will do next.
Waiting for rates to move could mean your borrowing position improves — but other things can change during that period too.
Property prices may change. Your income could change. Lending policies can change. Your deposit may grow. Your personal circumstances might look completely different.
Rather than trying to perfectly time the market, a better question may be:
Can I comfortably afford to buy based on my circumstances today?
If the answer is yes and you’ve allowed yourself an appropriate financial buffer, you can then make your decision based on your own goals rather than trying to predict the next interest-rate announcement.
What If an Online Calculator Says I Can’t Borrow Enough?
Don’t panic.
Online borrowing calculators can be useful as a starting point, but they’re not a full lending assessment.
Different lenders treat income, overtime, bonuses, existing debts, credit cards, rental income and other financial commitments differently.
This can be particularly important for self-employed borrowers, investors, people with multiple income sources or anyone whose circumstances don’t fit neatly into a calculator.
A broker can look more closely at your position and compare how different lenders may assess it.
Sometimes the answer will still be that the numbers don’t work right now — and that’s okay too.
Knowing what needs to change gives you something concrete to work towards.
Rates Are Only One Part of the Picture
Interest rates matter. But they’re not the only thing that determines whether you can borrow.
Your income, deposit, equity, expenses, debts, loan structure and lender selection can all make a difference.
At Your Finance Broker, we look at the whole picture.
Whether you’re considering buying your first or next home, refinancing, renovating, investing or building, we can review your position and help you understand what options may be available.
So if you’ve seen the latest interest rate news and immediately thought:
“There goes my plan.”
Before you give up on it, let’s run the numbers.
You may have more options than you think.
Thinking About Buying, Refinancing or Renovating?
If interest rate changes have left you wondering what you can borrow or whether your plans are still achievable, get in touch with Your Finance Broker.
We can review your circumstances, compare lending options and help you understand what your next step could look like.
General information only. This information does not take into account your individual objectives, financial situation or needs. Lending criteria, interest rates, fees and eligibility requirements vary between lenders and are subject to change.
