The decision by the Reserve Bank of Australia to reduce the cash rate earlier this month doesn’t just mean lower repayments for most borrowers – it also means the average person’s borrowing capacity has increased, as occurred following earlier rate cuts in May and February.
With rates now lower, lenders are starting to adjust their serviceability buffers. That shift means borrowers can show they can afford more on paper, effectively lifting their borrowing capacity. For some, it could be the difference between missing out and finally being able to secure their preferred property.
Furthermore, PropTrack economist Angus Moore has estimated that every change of 0.50 percentage points in the cash rate equates to a change in borrowing power of about 5%.
While a stronger borrowing capacity is welcome, it’s important to borrow within your means.
Your borrowing capacity can vary significantly from lender to lender, which is why it’s important to work with a mortgage broker who understands the different credit policies of different banks.