Banks are winding back mortgage amounts as interest rates continue to rise

Property prices may be dropping but that doesn’t mean that wannabe home owners are suddenly celebrating.

Lenders are simultaneously winding back how many people can borrow for mortgages as they factor in higher interest rate repayments and cost of living pressures.

Corey Chamberlain and his partner were just told by their mortgage broker that their borrowing capacity with a smaller lender has dropped by more than 20 per cent.

That’s compared with a national property price drop of just 2 per cent in the last three months.

“I’m gutted, really,” Mr Chamberlain told ABC News.

The couple with a young child were first approved for a mortgage of around $975,000 in late 2021, and then again when they went back for pre-approval earlier this year.

That’s when Australia’s official cash rate was still at 0.1 per cent.

Since May, the Reserve Bank has been raising the cash rate to tackle emerging inflation that’s hitting the Australian economy.

Today, the RBA is expected to hike the cash rate again to take it to 1.85 per cent.

Banks are passing the higher cash rate onto borrowers in the form of lending rates, which is impacting the head repayments on people’s loans.

In October, the regulator APRA also told the banks to raise the minimum interest rate buffer on loans from 2.5 per cent to 3 per cent.