xzibit

I have just watched WDU on iplayer, and there was a couple that were looking at how much they could borrow. They visited a mortgage advisor, and the bloke would earn $70k and the women $25k.

With just the bloke working, they could borrow just over $400k, and with both of them working, they could borrow about $560k.

Now, that's about 5.9x their salaries!! Is this normal in oz?

I know in the UK, some places will lend you upto 6x, but this isn't all lenders, and the norm in the UK is about 4-4.5x I think.

I'm not sure of the ins and outs of buying, as I've never bought property as I'm still youngish and didn't see the point wanting to emigrate. So I want to rent and save a bit then purchase when i have settled.

So what it the average mulitple of salary in Oz??

(This thread is nothing to do with the price of property in the UK or Oz, how they compare, people thinking they'll get more for their money, and about how much you should borrow etc etc)

asprilla

I reckon that most people have it somewhere between 2.5x and 4x.

That "wanted down under" show is a bit rubbish, in my opinion...

xzibit

Well, that's what the advisor informed them they could get. They showed the computer screen, so I presume it's possible?

He wouldn't lie just to make good telly? lol

Oh, and if young people needing to get on the property ladder had theirs at only 3x their salary, they'd be able to buy a lovely garden shed!

asprilla

Well, the advisor has just gone off a mortgage calculator website, that's all.

One of the reasons that "wanted down under" is so rubbish (in my opinion) is that it doesn't present information properly, and this is a good example.

If you had been to see an advisor in Oz, you'd walk away knowing that whilst 6x might be your theoretical maximum, in reality you are limited to what you can afford to pay off...which in most cases is 3.5x or 4x salary.

However, you have taken info from the tv show and come away asking "is it normal to borrow 5.9x salary in Oz?" - the answer is, no its not normal. The TV show writers are twisting the rules so that they can show couples bigger houses than they can afford....because bigger houses make the show more appealing.

xzibit

Ok, thanks.

So similar to the uk in that respect then, that you can get 6x your salary, but you probably can't afford it!

Good to know that 3-4x is realistic though.

asprilla

Given that inflation is growing here, I personally wouldn't go past 3.5x if I was earning an average salary.

Another thing to think about...it depends on how much you earn.

If I was earning $70k, I might look at 3x max. But if I was earning $150k, I might look at 4x max.

Reason being, that after loan repayments, you'd still have a similar amount of money to spend on living costs in both scenarios. (I haven't actually worked out the actual numbers, I'm guessing they are similar...but the idea is definitely right).

cheers

xzibit

So for somebody who wants to buy their first home, it could be even harder than in the UK? Due to the interest rates?

Somebody on $50k for example, who got 3.5x their salary would manage $150,000 plus the $7,000 first buyers grant and a 10% deposit say could afford a $170,000 house.

I'm going to need to get a wife by that point then lol.

esperanza

Interest rates are generally higher here than UK, but to take your example of $50,000 - that equates to roughly £22,000. If you got 3.5 x that in the UK it would be £77, there's no grant, so even if you'd saved £10k (which would be over 10%, but no grant to use for stamp duty etc) you'd have a budget of £87k. Which might buy you about half of the small terraced house that you wanted! I haven't actually searched in those budgets, but I think I'd probably rather live in the $170,000 Aussie property - or even a flat a bit cheaper, to keep the payments down. Having said that though, every time the rates go up I'm bloody glad that I pay rent!
I can see how people managed it 5 or 10 years ago. I rue the day that my parents didn't conceive me five years earlier, I would have got a freebie student loan/grant too.....woe is me!

MartinH

Borrowing (or lending) $560k on a gross combined salary of $100k would be irresponsible. Interest alone would be around $50k per annum which would be almost 50% of gross salary.

xzibit

I see. I have been looking in this country, and around here (deepest darkest dorset) where houses are cheap, for a small 1 bed flat, your looking at £110k, which is equivalent to $240k-ish. So I presume, for the 3.5x the salary, you'd get more for your money in Aus.

esperanza

Generally speaking, you will always get more for your money in Australia. For what we sold our 3 bed/downstairs bathroom/tiny courtyard garden terrace for in the UK, we could buy a 4 bedroom with builtins & aircon and a nice big yard. Course the interest rates are a bit higher, so whilst the house is better value the loan is not - but that's why it's even more important in Australia to not overstretch yourself. Makes much more sense to plan overpayments, clear it faster (thus paying less interest) and then if there is a big rate rise you'd at least still be able to afford the basic payments.

Potato_potato

What the bank will lend you and what you can afford are two different things.

It's up to you to work out your budget (plus interest rate buffer). Don't trust them to do it for you.

Wendy

We were offered between 4 and 5 times my OH's salary when we were looking to buy, depending on the bank.

Australia_bound?

Have to remember that in Aus you most likely won't get the same wages that you do in UK, so when converting what you can afford 3.5x £ wage equates to a lot more than $ wage

k76

Had this discussion with my wife the other day, she basically asked why the banks offer you that much loan. This is my theory:

Why wouldn't a bank try to lend you as much money as possible? Most people will actually pay it off, and they make more money from your interest repayments. If you can't pay, well then the bank sells the house and get their money back. You're fuc%^$'d up well and truly though due to transaction cost, mortgage insurance cost etc. Whatever you had in deposit will be GONE.

This works great for the banks as long as the market is going up. If the housing market goes down the banks get burned too. Banks know this, I believe the banks will cash in when they can, but actually start pulling in their risk about now.

So from a greedy perspective the banks are not stupid, they cover their own backs. Most people are seeing this for what it is and doing their own budget. But I do feel sorry for the ones that fall into the trap.