A Trap for Young Players

The allure of the property market for first home buyers is hard to resist. Home ownership is considered a rite of passage for new couples.

The problem I see more often than not is clients over extending themselves resulting in losses to the net worth. That is borrowing at your limit based on a combined salary, or being encouraged to buy with less than a 20% deposit.

So here it is for you straight up. Interest rates have never been as low as they are today. Consequently house prices have risen and debt has been issued like its going out of fashion. To avoid financial hardship make realistic calls and avoid skating on thin ice.

Do not borrow according to your salary, but according to your budget.

Live within you means. Learn where your money is being spent and manage it. Ask yourself how much you can afford to repay given that budget. Give yourself a margin then look for houses in that range.  If interest rates go up, you want to know that you are able to meet your repayments with disposable cash rather than by making sacrifices to your lifestyle or through a fire sale of things you love.

Secondly, save a minimum of 20% for the house you want.

A Savings habit is something you will need to adopt to pay down your mortgage as quickly as you can. Something to remember is that, roughly speaking, for every dollar you add towards a deposit, you will save 2 in repayments over the life of the loan.

Don’t get tricked into buying the 4 bedroom house of your dreams immediately. Leap frog from an adequate sized property to your desired property as your needs dictate.

The only people who benefit are the banks and your mortgage broker… For the next 20 to 30 years.

Remember, the lower your proportion of interest you pay each fortnight, the more you are accumulating in equity within your new home and your personal wealth.

Most importantly, get good advice from someone you trust.


Daniel Twentyman B.Bus.(Eco) Dip.F.S.(FP) Financial Planner – Authorised Representative