New lending standards imposed by the prudential regulator mean that it might be more difficult for some house hunters to qualify for a home loan come November 1, though one expert says there are still ways to work around the changes.
The Australian Prudential Regulatory Authority (APRA) announced earlier this month that it would raise buffer test it applies to see if borrowers can handle future interest rate rises from 2.5 per cent to 3 per cent.
It means that a borrower applying for a home loan at a 2 per cent rate today would have their application scrutinised to determine if they could still make the repayments at a 5 per cent interest rate.
The changes are expected to reduce a person's borrowing capacity by around 5 per cent, if their lender is subject to the new rules.
"That would mean if you were previously approved for an $800,000 loan it would now be $760,000," explained Sarah Megginson, senior home loans editor at comparison website Finder.
"$40,000 less is quite a big difference in this market," she added.
APRA announced that the changes would be expected to implement the changes from November 1, though it is understood that many banks have already been tightening their borrowing tests in the wake of the announcement.
"Fixed rate loans have been ramping up over the past few months and that's also a reflection of these changes - when fixed rates go up your lending power changes," Ms Megginson said.
House hunters with existing pre-approvals may be able to avoid the changes, but for those considering taking out a loan in November the changes do not necessarily mean they will be forced to slash their budget.
"The important thing for people to understand is that, for now, this applies to banks and not non-bank lenders," Ms Megginson said.
"A non-bank lender, they often do everything that a bank does, they can provide all different types of credit but they are not a bank. They are a financial institution, a credit union or a builders a society... They are governed by slightly different rules."
APRA's new rules apply to authorised deposit taking institutions or ADIs, while non-bank lenders are still subject to the existing 2.5 per cent buffer.
Shopping around outside the traditional 'big four' banks could help a borrower secure the right loan, but it also paid to remember that every lender will assess loan applications differently, Ms Megginson said.
"For instance some credit unions can be friendlier to self-employed borrowers," she said.
"Depending on your situation, what these changes really remind us is that it pays to shop around," she added.
Wipe personal debts to increase borrowing capacity
There were other, relatively simple things prospective borrowers could do to improve the chances of their home loan being approved, or to increase the amount they are able to borrow.
This included closing unnecessary credit accounts, like credit cards.
"Another thing people don't realise is that your personal debts drag down your lending capacity, even if you don't use your credit limit," she said.
"If you wipe out that credit card account or reduce the borrowing limit, your borrowing power will increase a lot," she said.
Unlikely to impact prices
Economist Saul Eslake, of Corinna Economic Advisory, said that the changes are unlikely to have a dramatic impact on house prices.
"Many investors will already have some existing debt, so the impact of the higher serviceability assessment rate may be larger - but of course investors' interest payments are tax deductible whereas owner-occupiers' are not, so that probably mitigates the impact on investors. Overall I doubt that this measure will have much impact," he said.