EP 051: How Interest Rate Rises Affect Your Borrowing Capacity With Aaron Whybrow

I had a call with my Buyers agent a few weeks ago.

He made a passing comment that probably wasn’t significant to him.
But… did keep me up that night.

“If you are thinking of buying another property, move quickly! As you won’t get the lending you want from the bank if you wait too long.”

I pulled him up and asked him to explain.

As I thought that I was in a strong lending position.

My balance sheet and business profits are solid in my eyes.
Even better than last year.

“Interest rates plus inflation,” he said the reason was.

He then went on to school me on how things are changing when it comes to borrowing.

I’ll summarise his points below.

*** Please note the below points were specific to my situation ***
You need to speak to a lending specialist to understand the impacts on your own borrowing capacity.

Inflation:
In the bank’s eyes, your cost of living has gone up due to inflation.

Even if you haven’t changed the way you live, the cost of living for you has gone up, and you are seen as less capable of servicing a loan because of it.

Interest rates:
For every 1% the interest rate goes up, my borrowing capacity will go down 9%

This compounds across all your borrowing, not just the new borrowing you are contemplating.

For someone with a portfolio of my size, a 1% rise can be a 20%-25% decrease in borrowing power.

Pair these up, and my borrowing capacity is being constricted more and more each month!

This is what was keeping me up at night.
I was severely underestimating the impacts of rate rises and inflation on overall borrowing.

So a question I kept coming back to:
“Do I make a move now or wait?”

A tough question for anyone, especially with all that is going on in the world…

Anyhow,

To help others understand this topic more deeply, I have brought Aaron Whybrow on the podcast.

Our resident mortgage broker and lending specialist for business owners.

He was gracious enough to walk us through a practical example of how lending works when rates are going up, and inflation is on a tear.

If you want to understand how borrowing works, this is the episode for you.



DISCLAIMER:
All information we share is NOT financial or investment advice and is purely intended for entertainment and educational purposes only. Always seek professional advice before acting on any financial decision.

Episode Highlights:

00:00 Welcome to Full Stack Business Owner
02:26 Learn about Aaron and his mortgage broking firm
03:25 How interest rate rise affects borrowing power
07:30 Different ways lenders assess your borrowing power
12:27 The impact of debt and loss in your borrowing capacity
16:43 Increasing income to increase borrowing power
20:07 Assessing household expenditures
23:26 The right time to borrow money
27:05 How people are keeping up with inflation and high interest rates
32:54 Outpacing your business income

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ABOUT THE GUEST:

Aaron Whybrow is the founder of Diagnostics and Finance, a Financial Broking and Personal Risk Insurance Business.

Diagnostics & Finance (ARW Financial Services Pty Ltd) is a Credit Representative 425540 of Finsure Finance & Insurance ACL 384704.

He is known as the ‘bagpiping mortgage broker’, who prides himself on having no ‘flats’ in his career. He blends his experiences as a former intensive care unit nurse and medical sales rep to provide the best outcomes for his clients. 

Connect with Aaron and his team through our Partners page: https://www.fullstackbusinessowner.com/partners/

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