Financial experts are suggesting that Australian first home buyers who are looking to buy a home in larger metropolitan centres, need to consider their budget before buying. This will prevent first home buyers from stretching their finances.
Smart buying will allow first home buyers to manage their finances when interest rates rise. This way first home buyers will reduce stress and still have a quality of life.
How First Home Buyers Can Avoid Financial Stress
While Australian finances are not currently stretched due to lower home loan rates, this can change. This is why it is better that first home buyers to look for a home below their maximum borrowing capacity. Buying a cheaper home now, means that first home buyers can often pay more off their home loan than required when rates are low. Then when rates rise, first home buyers can afford home loan repayments without experiencing financial difficulty.
Lenders Making Sure Debt is Relative to Income
Buying at a time when interest rates are extremely low can often give first home buyers a false sense of security with many believing they can afford to buy a more expensive home. However debt needs to be relative to income, and first home buyers need to account for changes in interest rates. This way they won’t get caught out, especially when housing experts are suggesting that the housing price cycle will be slower over the coming years.
This means home price growth will steadily increase, rather than jump as it has done in the past. In fact, it is highly unlikely that Australians will witness a housing price boom like they did in 2002 and 2003. Therefore, if a new home buyer makes a mistake by overpaying for a home and overstretching their budget, it will be harder for them to recover their costs long-term.
Thankfully, most lenders are using more advanced methods to assess a borrower’s capacity to repay a home loan. Many lenders are also taking the actual living costs of a borrower into consideration and they are adding additional interest to current interest rates when calculating home loan repayments and affordability. This then allows these lenders to reassured that their borrowers can afford to repay their home loan before they approve the home loan.
Are you a first home buyer looking for a home loan? Yes? Then contact eChoice NOW and find the right home loan for YOU.
Written by eChoice