Your borrowing power in a changing property market 

When buying a home there are numerous exciting elements, including moving out of home, decorating your new space, house hunting and so much more. But with that comes navigating the challenging lending landscape. 

With changing interest rates throughout 2023 it pays to be aware of your borrowing capacity, especially if interest rates rise, resulting in higher monthly mortgage repayments. 

When the National Reserve Bank decides to increase mortgage interest rates, individuals’ borrowing power decreases, changing their ability to qualify for large loan amounts as lenders consider the increased repayment amount. 

Understanding your borrowing power will allow you to make informed choices for your future.

Here are some points to consider.

• Assess your financial situation. 

This may seem like a no-brainer, but this step is often missed or miss-understood. 

We strongly recommend starting with a budget, so you become aware of how much you can afford to pay towards a mortgage each month. This is a crucial step and should be realistic. 

There are several easy-to-use budget planners available – an example is https://moneysmart.gov.au/budgeting/budget-planner

Meaning, when assessing your financial situation, it is always recommended you leave space for buffers to ensure individuals will be able to meet their loan obligations if interest rates rise. 

• Borrowing calculators 

Finding home loan calculators are a great first step to see how much you can borrow and what the potential interest rates and repayments may be. 

Don’t forget there are a number of other costs to consider when looking at your borrowing capacity, such as Stamp Duty, Lender’s Mortgage Insurance, Conveyancing fees, Building and Pest Inspections, Home and Contents Insurance, Council Rates, Home Loan application fees, Mortgage Registration fees, moving costs, repairs, etc. 

Begin calculating here. 

• Reduce unrequired debts 

Lenders assess your debt-to-income ratio when determining borrowing capacity, among other criteria’s. 

By paying off or reducing your existing debt such as credit cards, personal loans, car loans or HECS, you may be able to increase your borrowing capacity. 

• Leverage available grants and schemes. 

There are frequently a range of government first home buyer schemes and grants available to support future homeowners. These initiatives were intended to make homeownership a more affordable and eligible journey. 

Here is a list of national grants available. 

• Seek professional advice. 

The property market can seem quite daunting as a first home buyer, so we recommend discussing your borrowing capacity and obtaining further information and guidance on property purchase with an expert. 

Investing in a good mortgage broker and solicitor will assist with an informed and smooth process.

We want to make it as seamless and exciting as it can be and we hope this blog has given you some knowledge to feel a bit more confident in approaching the property market. 

 If you have any questions or require further advice, contact our office on 07 3049 9999.