HAVEN MONEY
Congratulations to Cheryl for winning $1,000 by sharing her moment of connection with a perfect stranger. In our ever-accelerated lives, unexpected connections like Cheryl and Barbara’s are sweet little gifts. In October I took my daughter to Bondi Junction for a quick shopping trip and decided to have afternoon tea at Pattison’s Patisserie. They have a fine selection of desserts, and I couldn’t decide which one to choose! I started talking to a stranger beside me who was also struggling to decide on her dessert. She was an older lady, dressed impeccably in purple, and we talked about which ones we would like to try and laughed about putting on weight instantly just by looking at all the delicious desserts. She really made me laugh and we instantly connected. I ended up paying for her coffee and dessert and the owner said I was the nicest woman he had seen that day. I even took a photo with her and gave her a hug – a complete stranger who I’ll never forget from that moment in time. Her name is Barbara and I hope I bump into her again one day!
THE BORROWER’S DILEMMA
How much is too much? Securing a home loan offer is an exciting moment. A world of possibility opens up around that all-important number. And while no one wants to rain on the parade of eager house hunters, there’s a key question to address before falling in love with a property: Is there a difference between what you can borrow and what you should borrow? Only 10 per cent of borrowers take the maximum amount lenders are willing to offer, according to the Reserve Bank of Australia.1 So, despite burgeoning debt levels, we’re still a relatively sensible lot. However, this year, with economists speculating we’re at or near the top of the rate cycle, more borrowers may be tempted to extend themselves as they’re squeezed between rising prices and falling borrowing capacity. Since the RBA began hiking the target cash rate in May 2022, the amount average home buyers can borrow has fallen 30 per cent.2 That equates to a drop in purchasing power from $878,400 to just $600,300 for an average family of four, according to Rate City analysis. During the same period, the median home value in Australia has grown by 10 per cent to $762,000.3 Little wonder many borrowers may find themselves weighing up the pros and cons of taking on a larger loan to meet the market in 2024. Working out your financial comfort zone involves considering several factors.
UNDERSTAND HOW LOANS ARE ASSESSED No one – especially brokers and lenders – want to see borrowers in over their heads. The first step in deciding what size loan to take on is understanding how lenders assess it. Your broker will step you through this in detail, but in a nutshell, lenders deduct your living expenses and total debt repayments (including outstanding HECS debt repayments and ~3 per cent of credit card limits) from your income, with a buffer for potential interest rate rises.
1 Kearns, J, Interest Rates and the Property Market, speech to AFR Property Summit, 19 September 2022. 2 H annam, P, Australian property market may soon cool as rate hikes shrink borrowing capacity, The Guardian, 10 November, 2023. 3 PropTrak Home Price Index, www.proptrack.com.au/home-price-index
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