Low-middle income earners feeling the bite from rising prices

However, these rising prices coupled with higher interest rates amid a cost-of-living crisis have left many low-to-middle income earners with few options when it comes to servicing a mortgage.

Director and mortgage broker at Saint Finance, Chris DiBlasi, told The Adviser that the landscape has changed completely over the last two years with interest rates coming off historical lows.

“Nobody really expected this coming out of the COVID-19 period, but here we are and it’s made it tough [on people] if they’re not earning enough income,” Mr DiBlasi said.

“With the banks stepping in and introducing lowered refinancing buffers, I think that’s a very good initiative to help people who already have debt.

“It’s a tough slog [for low-to-middle income earners], not only to get a deposit, but to gain a mortgage.”

Speaking on serviceability issues, South Brisbane-based mortgage broker for Mortgage Choice Springwood, Dean Naylor, said a lot of borrowers are still struggling with accrued debt.

“A lot of them do have large amounts of consumer debt, which obviously is going to cause issues,” Mr Naylor said.

“Maybe two or three years ago, it was fairly cheap to buy a caravan, or a car or a holiday away and people have entered into these agreements because it was very manageable at the time.

“However, since then, their incomes haven’t gone up, but the debt cost has. So, when I get a client looking to refinance the same amount of debt they’ve had three years ago, it just doesn’t work anymore.

“In the eyes of the bank, they can’t afford to service their own mortgage that they’re already paying, which is fine when they were stress-tested at around 5 per cent, but now rates are closer to 6.5 per cent. They’ve gone beyond their limits and more.”

According to Mr DiBlasi, a way for brokers to help low-to-middle income borrowers is to educate them on where they need to be to be able to purchase a home.

“You have to be transparent and let them know exactly what milestones or metrics they need to reach in order to make that dream a reality,” Mr DiBlasi said.

Mr Naylor added that clients who work labour-based or service industry jobs may need to increase number of hours they work in order to be able to effectively service a mortgage.

“That’s either a part-time worker going full time or it’s a full-time work and doing extra overtime just to make things work,” he said.

“I’ve got a couple of clients that have gone away and they’ve done three to six months of overtime just so they can service and consolidate all their debt and make it much cheaper.”

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