Aussies are turning to alternative strategies to slash their home loans as the RBA holds off on rate cuts.
New research from Finder has revealed almost one in five Australians are reining in their spending to secure a home loan or pay off their mortgage.
With the RBA unlikely to provide interest rate relief until well after Christmas, Aussies are taking matters into their own hands to secure a mortgage, boost their borrowing power, or reduce their current debt.
A survey of more than 1000 Australians found 18 per cent — almost one in five — needed to reduce personal debt and spending to refinance or gain loan approval.
The RBA won’t likely cut interest rates until February so Aussies are taking matters into their own hands. Picture: NewsWire/Jeremy Piper
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NSW residents were the most likely state to cut back on spending, with one in five reducing spending to win loan approval, according to Finder.
This included reducing credit card debts, car and personal loans, cutting down on food delivery and subscriptions.
The financial incentive for tightening belts is clear.
For prospective buyers, existing debts can dramatically slash borrowing power while for mortgage holders it can hold them back from a mortgage free future.
While the average home loan rate sits at 5.73 per cent according to the RBA, the average credit card carries a hefty 20.99 per cent interest rate.
Finder revealed one in five Aussies are cutting their spending.
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For someone earning an average Australian weekly wage of $2010 a week – having an unused $20,000 credit card limit reduces borrowing capacity by $84,000 – that’s from about $713,000 down to $629,000, according to Finder’s mortgage calculator.
Even a modest $250 monthly car loan payment cuts borrowing power by $36,000 to $678,000 for the same salary.
Finder’s personal finance expert Sarah Megginson said borrowers were doing everything they could do boost their borrowing potential.
“People aren’t just trimming luxuries, many are overhauling their entire financial lives to prove to the bank they’re a safe bet,” she said.
Homeowners are tightening their belt to secure the home or boost their. Picture: Tom Parrish
“The fact that millions are cutting back just to refinance reveals how tight the credit environment is. It’s no longer enough to have equity, you need spotless spending habits too.”
Ms Megginson said people are delaying major life decisions, from starting a family to upgrading a car, all in pursuit of keeping or getting a home loan.
“It’s a stark reminder that home ownership now dictates how, and when, Australians live their lives.”
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