Assessment rates currently – 2.5% above the rate the client will receive OR (using CBA as an example) 5.25% (lenders minimum), whichever is higher. New changes, variable assessment rate to be increased to 3%
Example 1
- Client can borrow $500,000 with an interest rate of 2.1% (fairly common for owner occupied).
- The $500,000 borrowing capacity was calculated using the higher of the 2 different assessment interest rates (variable or the lenders minimum assessment rate), 2.1% + 2.5% = 4.6% variable assessment rate and the lenders minimum (floor) assessment rate is 5.25%. 5.25% is used as it’s the higher of the two assessment rates
- New variable assessment rate to be introduced later this month (3% instead of 2.5%). 2.1% + 3% = 5.1%. Banks minimum assessment rate still 5.25% so 5.25% is still used as higher of the two.
- No change in loan amount for the client.
Example 2
- Client can borrow $500,000 with an interest rate of 2.5% (fairly common for investment lending).
- The $500,000 borrowing capacity was calculated using the higher of the 2 different assessment interest rates (variable or the lenders minimum assessment rate), 2.5% + 2.5% = 5% variable assessment rate and the lenders minimum (floor) assessment rate is 5.25%. 5.25% is used as it’s the higher of the two assessment rates
- New variable assessment rate to be introduced later this month (3% instead of 2.5%). 2.5% + 3% = 5.5%. Now the variable assessment rate is 0.25% higher so that is used.
- Reduced loan amount to $486,000 – 3% reduction.
This gives you a rough idea of what will happen in the coming months but it does look like owner occupied lending remains fairly untouched and your average investment lending will only have a small change.
The above will change lender to lender depending on what their minimum assessment rate is obviously; for this example I have used CBA.
article by Derek Farmer