Buying property: How to determine your borrowing capacity By Antony Field
Australia’s booming residential real estate market is a major worry for those trying to get a foot on the property ladder, so put the power in your hands.
Record low interest rates, lifestyle changes brought about by COVID-19 and greater savings to put towards a deposit have fuelled a very hot property market. In 2021, house prices grew a whopping 22% nationwide.
Even rural and regional areas, which had only modest price growth pre-COVID, experienced a boom with capital city dwellers moving for a sea or tree change with home becoming the new office.
While all this is great if you’re selling your house, skyrocketing prices have given those looking to buy property, especially first home buyers, plenty of sleepless nights.
So, if you want to enter the property market and successfully achieve the ultimate Australian dream of home ownership, just where should you start?
A simple solution: calculate your borrowing power
As a first step, potential buyers should work out how much they can borrow. So how do you do this without a lot of time and hassle?
The answer is straightforward: calculate how much you can borrow. Using a borrowing calculator provided by banks and mortgage lenders can easily provide you a clear indication of how much you can borrow with a few clicks of a button. It’s as simple as entering your individual circumstances, and following the prompts to receive your estimation.
Decide if the loan is to be a joint or single person application. A joint application means you’ll need details of your own and partner’s after tax incomes. Enter this information, plus details of other income such as savings or government payments. Work out your average living expenses and any debt you owe (i.e. credit card) and input it. Once complete, the calculator will tell you how much you’re likely to be able to borrow and the repayments if you do borrow that sum.
Learn about the market
It’s very important not to let emotion, whether it be excitement or stress get the best of you when you are about to make one of the most important decisions you’ll ever make in your life.
Don’t get sucked into FOMO (fear of missing out) when it comes to buying a home – in many areas there’s few properties available and they are snapped up quickly. The last thing you want to do is over commit yourself with too much debt because you were desperate to buy your dream home. That could come back to bite you especially with interest rates tipped to rise sometime this year.
Before you even start looking for a property, you need to study the real estate market. Where do you want to buy? Learn about your own suburb but don’t just stick to it – look at neighbouring suburbs, even further afield to areas which are not in your ideal zone. Research is crucial to finding attractive, affordable properties.
Think outside the box
To increase your chances of successfully purchasing property, some left field thinking might be required.
There’s a number of ‘outside the box’ solutions which could help your achieve your property goals.
One of the biggest property trends recently is rentvesting. This involves buying in an affordable area as an investment, but renting a place where you want to live. A lot of young people are entering the market this way – they’ll buy a small unit even if it’s in a different state or a remote area but rent and live in the city close to work or family.
You might have to adjust your lifestyle – consider finding a job in an affordable area even if it’s far away. Digital communication means it’s a lot easier to work from anywhere.
There are also different property ownership models, such as co-ownership. There are two main types: tenants in common, allowing two or more people to have a defined share of a property, and joint ownership, where two people own the entire interest in the property.
Knowledge can help you achieve property goals
Buying property can be a daunting challenge, especially if you don’t have the right tools to successfully navigate the market.
But with a bit of careful planning and research and the expert advice of people who understand property finance better than anyone, mortgage brokers, your property dream can become a reality.
“When the pressure is on to secure a home, there is the risk that you may overextend yourself,” says home finance expert and Savvy Finance CEO Bill Tsouvalas.
“The key is to go into the market with a clear understanding of exactly how much you can afford to borrow. By having a maximum figure in your head, you will know just how high you are able to go when the pressure is on."
Knowledge is power – and with it you can achieve property ownership.
Being aware of what is happening in your borrowing capacity and target market values can save you thousands
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The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.