Managing your expectations
It might be tempting to make your first home your dream home, but first home buyers should be careful not to overburden themselves.
When it comes to making that first move into the property market, many first home buyers begin their foray by browsing the market for properties they really like.
Make no mistake – it’s important to like the first home you buy – and you want to have a good feeling about it – but good things come to those who wait, and sometimes the best strategy is to start small.
The price tag of Australian property doesn’t come cheap. And for first timers, taking on a mortgage is not always a straightforward process.
According to research by the National Centre for Social and Economic Modelling (NATSEM), mortgage pressures for first home buyers have worsened over the past decade, with as many as one in two first home buyer households dedicating more than a third of their disposable income towards housing.
Dedicating more than a third of your income towards a mortgage is commonly referred to as ‘mortgage stress’, and by overextending yourself your first home can become more of a nightmare than an enjoyable experience.
Aspiring property buyers should consider their first purchase carefully, starting with a balanced assessment of their borrowing options.
The best place to start is to determine your borrowing capacity, not only in terms of what a lender is willing to offer you, but also with regards to your individual circumstances and lifestyle in order to match your mortgage commitments to your other life priorities.
First home buyers should factor in a rise of two per cent in their interest rate to avoid any chance of slipping into mortgage stress in the years ahead.
A great way to ‘test’ your mortgage serviceability is to work out what income you would have left if you were to take out a certain size loan and then start living by it. If you can’t comfortably manage you might need to reassess your buying options.
If you can manage, then you know your borrowing capacity as well as your property budget and it’s time to start house hunting – without wasting time on properties you simply can’t afford.
By starting smaller, you’ll be able to pay more off your loan quicker, which means you’ll be building your personal wealth and getting yourself on track towards upgrading to a better property in the future, rather than swimming in debt.
Buying your first home is great, but don’t ruin the experience by biting off more than you can chew.
Source: Lending Services Victoria