Aussie banks usually also assess people's ability to pay back the mortgage with a higher percentage than what the rate they are charging. It was as high as 7% before but I think that has come down a little bit. But always higher than what is charged so there is a degree of flex in the rate hikes until people cannot afford them anymore.
For me, I'll be paying down my mortgage as fast as I can when the rates are low to prepare for any potential hikes in the future. Better be safe than sorry.
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I remember it being much harder back when I got my first house there 1999ish, and yeah, they do stress test, but I don't think they do a very good job of factoring in the other obligations that people have. I think the increase in usage of BNPLs is a pretty good indicator.
It also allows for some ability to have a bit extra to take advantage in the downturns too.
Yes they used to be quite lenient but from the stories from a couple of friends trying to get mortgages now, seems like they really scrutinise every detail, every transaction. Although word on the street is that this will be flipped the other way soon, burden is shifted onto the borrower instead of lender. Will be interesting to see how it all pans out for the housing market.
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