How much is too much?
First home buyer mortgage pressure is on the rise, according to a new report, with as many as one in two first home buyer households dedicating more than a third of their disposable income to housing.
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According to new research released by the National Centre for Social and Economic Modelling (NATSEM), mortgage pressures have worsened over the past decade, particularly in Brisbane and Melbourne. First home buyers in those cities now face financial pressures on par with Sydneysiders.
Over the past 10 years mortgage pressures have remained high but stable in what is considered the nation’s most unaffordable city, Sydney, at 56 per cent.
In the same period, NATSEM said mortgage pressures have increased dramatically in Brisbane and Melbourne, from 43 to 58 per cent and 36 to 53 per cent respectively.
“The higher pressure on first home buyers is driven by disposable incomes growing by just 64 per cent compared to house prices growing by 132 per cent over the past decade,” principal researcher Ben Phillips said.
While high property prices, particularly in these capital city markets, and now, higher interest rates, have made housing more unaffordable for first home buyers, you do not need to over burden yourself with debt.
When seeking a home loan, be sure to consider not only what you are eligible to borrow, but what you are comfortable borrowing – and try your loan on for size before you commit.
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 comfortably manage, that’s great, but if you can’t, you might need to reassess your buying options.
Furthermore, it’s crucial to determine the cost of servicing your mortgage should interest rates rise, to avoid falling into mortgage stress down the track. A good rule of thumb is to account for a two per cent rise in your interest rate.
Don’t make the mistake of over-burdening yourself with debt. Buying your first home is great, but don’t ruin the experience by biting off more than you can chew.