1 in 5 Australians have admitted to feeling pressured to purchase a big house to impress their friends, according to new survey released by Finder.com.au. Of those surveyed, 1 in 10 worry about what others will say behind their back and couldn’t handle not living in as good an area as their friends.
Aussies are being warned to take into account more than just the opinion of their pals when purchasing a property. Or risk getting themselves into extortionate home loan debt they may struggle to pay off.
Don’t try to keep up with the Joneses
Jeremy Cabral, Publisher of Finder.com.au, Australia’s leading home loan comparison website says, “Purchasing your first home is an exciting time and it’s easy to get distracted by other people’s opinions or feel pressured to purchase a place that will impress others or make them envious of you.
“The reality though is that first home buyers need to consider the cost of keeping up with the Joneses and whether they can afford the repayments on a bigger property in a more highly desirable area. Rushing into a decision like this can end up costing first home buyers gravely down the track.
“First home buyers are always tempted to buy their dream home first. When actually, they should consider something more in line with their current budget to get them on the first rung of the property ladder and then buy bigger once the equity on the place builds up,” continues Mr. Cabral.
Mr. Cabral says first home buyers should be aware of the following crucial factors before signing up to a home loan that may be out of their budget:
Budget higher than the official interest rates
Although interest rates are currently at a remarkable low in Australia, variable rate home owners are encouraged to calculate the budget for their home loan 2% higher than the actual cash rate. This will safeguard them against unexpected interest rate changes that will occur down the track.
The economy is uncertain now more than ever and jobs are not as secure as they used to be. We can no longer simply rely on the annual bonus or pay increase to cover home loan debt.
First home buyers should not factor in bonuses or expected increases to their salary when calculating their home loan budget.
Get an estimate of how much you can borrow
Historically couples relied on the sole earner to pay the mortgage. Those days are long gone it would seem as couples now rely heavily on both incomes to cover the home loan payments.
A borrowing power calculator is essential to ascertain how much first home buyers can borrow. Couples should base their home loan budget on one or at most 1.5 incomes to allow for any changes to their income that may occur.
The first step first home buyers should take before selecting their desired home is to calculate their budget.
- First, they need to calculate how much of their income they can spend on a property
- Then they need to calculate the mortgage repayments required for the loan amount and what they would have to pay each month.
Don’t take the maximum loan amount
Regardless of whether the lender offers the maximum amount, buyers should be steered by their budget and borrow less than what is offered. Consider your repayment terms rather than seeking approval for the maximum home loan.
Home loan market growth
The home loan market has grown considerably in the last number of years. This spells good news for first home owners but can seem confusing. It’s important to take your time, compare all the home loan options available to you before signing on the dotted line.
“We all want our dream home and by taking a sensible and considered approach to getting on the property ladder, there is no reason why this can’t be achieved. But jumping into a massive home loan to impress others is not advisable,” concludes Mr. Cabral.
Finder.com.au is a free service for comparing home loans and finance products available to Australian mortgage borrowers.