As a mortgage broker this is an interesting topic that comes up often. As every bank has a different way of working out what is an acceptable amount of borrowing for an individual or couple. From a legal perspective under the new(ish) lending guidelines mortgage brokers have to be sure the clients understand the level of commitment and that the monthly repayments are achievable. As peoples lifestyles and spending habits vary greatly. I have seen people earning $55k with more borrowing capacity then people on $100k, as the extra money was tied up by lifestyle activities, car commitments, family and education etc etc the list goes on.

The simple rule I was taught when starting out was if you multiple household income by 4 then that was a conservative amount to borrow and should leave surplus cash flow for most people. But in today’s world this is not likely to be enough to buy the house you want in the area you want. So perhaps when you start thinking about using 5 times your household income the emphasis might become what can you afford to give up? To make sure that the repayments are sustainable in the long term. Are you willing to live on 2 minute noodles for the next 3 years+ or until you get your next pay rise? On a more serious and less drastic note it may mean less being spent on cars or holidays. Perhaps not going out to dinner 2 nights a week and cutting back to once a week.

This is my way of saying that there is no easy answer. But if you review your last 3-6months of banks statements and spending patterns I believe you will be more informed to answer the question for yourself. As this will give you an idea of where and what you spend your money on. It may be a bit scary at first but at least you will know and then you can decide if you want/ need to make changes.

On the upside, right now interest rates are reducing !! with historically low fixed rates offering stability and peace of mind, now might just be the time. Feel free to drop us a line and have a chat. We can show you what different banks will lend you and help you understand your position.

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