House Hunting

General Gibberish Forums The Pool Room
61

Apparently houses in Vic increased by 6% over the last three months. That is massive.

I'd love to know some sort of sample size and/or margin for error in that number.  It really seems like house price numbers and the equivalent of 'how we played last week' in real estate terms - if they went down, then suddenly Domain etc are trumpeting that property is a bargain and now is the time to buy, while if they went up, it's evidence that property values will always go up over the long term and you should invest as soon as you can.

 

Reporting on the housing market has been completely captured by vested interests (the real estate agents who advertise in property mags and the property section of papers) to an extent that would make Vlad green with envy.  It's really hard to take any reporting on property prices at face value any more (if you ever did)

62

Victorian prices have not risen anything like 6% in last 3 months. I’m an agent in Melbourne, have been since 1993. The market is definitely on the improve but as we know statistics can tell any story you want them to.

63

When it comes to taking out a mortgage, you'd have to be more than firmly confident with job security and career trajectory to even bother right??

 

I'm just trying to get my head around a 30 year non stop commitment in this economy.

64

When it comes to taking out a mortgage, you'd have to be more than firmly confident with job security and career trajectory to even bother right??
 
I'm just trying to get my head around a 30 year non stop commitment in this economy.


Yes, it is a big responsibility because your are promising that you will pay back what you are borrowing, and failure to do so has consequences which can have a detrimental effect on your life. Bankruptcy, marriage breakdown, just to name a few.
If you take out a big loan you really are tied to your income, you probably can't just have a year traveling overseas for instance, and quitting a job without having something else lined up is pretty silly.
So if you are someone who can't really save money, and don't have enough spare cash to cover a few months off work, and you've never really stuck with anything long term (job, relationship, qualification etc) then any long term commitment might not be a good idea.
Having said all of that, interest rates will go up and down a bit, but your wages will increase significantly over the years just through inflation alone. Basically the interest on your loan will relatively the same be the same in 10 years time but at just 3% inflation your wages will be around 50% more. For example, a $1500 monthly interest payment might seem a lot when you only earn 4k/month but in 10 years you will most likely be earning 6k/month and your monthly interest payment will be the same $1200/month, and that's assuming you've only been paying interest. Of course in ten years your property should be worth a fair bit more and so if you hated being tied to a mortgage you'd probably make a tidy profit by selling it.
Anyway, I'm no expert and that example probably has people poking many holes in it, but my point is that if you understand what your getting into, and you plan for different scenarios, the it doesn't have to be too stressful and you don't have to be super smart to make it work.
65

 

When it comes to taking out a mortgage, you'd have to be more than firmly confident with job security and career trajectory to even bother right??
 
I'm just trying to get my head around a 30 year non stop commitment in this economy.


Yes, it is a big responsibility because your are promising that you will pay back what you are borrowing, and failure to do so has consequences which can have a detrimental effect on your life. Bankruptcy, marriage breakdown, just to name a few.
If you take out a big loan you really are tied to your income, you probably can't just have a year traveling overseas for instance, and quitting a job without having something else lined up is pretty silly.
So if you are someone who can't really save money, and don't have enough spare cash to cover a few months off work, and you've never really stuck with anything long term (job, relationship, qualification etc) then any long term commitment might not be a good idea.
Having said all of that, interest rates will go up and down a bit, but your wages will increase significantly over the years just through inflation alone. Basically the interest on your loan will relatively the same be the same in 10 years time but at just 3% inflation your wages will be around 50% more. For example, a $1500 monthly interest payment might seem a lot when you only earn 4k/month but in 10 years you will most likely be earning 6k/month and your monthly interest payment will be the same $1200/month, and that's assuming you've only been paying interest. Of course in ten years your property should be worth a fair bit more and so if you hated being tied to a mortgage you'd probably make a tidy profit by selling it.
Anyway, I'm no expert and that example probably has people poking many holes in it, but my point is that if you understand what your getting into, and you plan for different scenarios, the it doesn't have to be too stressful and you don't have to be super smart to make it work.

 

Yeah that makes sense, It does make sense actually.

 

I dunno, It depends on the person. If I knew I had really good job security and was in the 100% right career then I would most likely do it. But you have to be a pretty strong character to achieve that.

 

Because who knows how secure our jobs are or the economy? I was doing contract work for a few years, then I couldn't find any work and ended up working in a completely different industry. But that's just me. 

 

Maybe that's why renting does actually make sense.

 

If you own, that's it, there is a 30 year commitment with barely any room for unintended issues.

 

This is why I figure saving a really big amount first before entering a mortgage contract seems to make more sense. I understand that a house goes up in value and that it's an asset and it's important.

 

If you rent then you take into account the realities of job security.

 

If you are in a relationship and both people are earning a wage then that seems the most logical situation for owning.

 

For single people who date but haven't got that far, then owning? I just can't imagine it. (maybe 10-15 years ago, but not now).

66

I think buying a house is a much bigger commitment than marriage...

 

But yes, if there's 2 of you then it mitigates the risk somewhat...

 

Also the general rule for most people is that 1/3 of your income(s) can be spent on a mortgage, other wise it's called 'mortgage stress'.

 

If you work it out so the minimum payments are only say 25%, you'll feel a lot less tied down.

 

Also some people have the option of just moving back home or whatever and renting the place out if they find themselves out of work or in financial trouble...

67

I think buying a house is a much bigger commitment than marriage...
But yes, if there's 2 of you then it mitigates the risk somewhat...
Also the general rule for most people is that 1/3 of your income(s) can be spent on a mortgage, other wise it's called 'mortgage stress'.
If you work it out so the minimum payments are only say 25%, you'll feel a lot less tied down.
Also some people have the option of just moving back home or whatever and renting the place out if they find themselves out of work or in financial trouble...

Yeah-nah.
I've had four houses under my name, just the one marriage.
There's no rule says you have to stay in the same house for 30 years, and as others have pointed out if you get to ten years you should be going 'how easy is this all of a sudden?'
68

Regarding "mortgage stress". Is that based on gross or net income?


Pretty sure they are referring to nett income, but its just a guide, based mainly on surveys.
You might be feeling mortgage stress when your repayments are only 20%, because you spend the rest of your money on expensive cars, gambling, drugs etc... Though I suppose you shouldn't call it "mortgage" stress in that case.
69

To me the decision came down to 'am I willing to give up things I enjoy & work 2 or 3 crap jobs if I have to'. We bought when my job at that point wasn't all that secure. And the answer was yes. I wouldn't like it though.

70

OK so every time I got into the bank they try and get me to go through the process to get a home loan (or any loan for that matter). I'm guessing they can see that I'm saving a fair bit of money whilst renting and I have a fair old amount in savings too yeah? That's a good sign that I'm doing something right and home ownership might not be as far away I thought?

71

OK so every time I got into the bank they try and get me to go through the process to get a home loan (or any loan for that matter). I'm guessing they can see that I'm saving a fair bit of money whilst renting and I have a fair old amount in savings too yeah? That's a good sign that I'm doing something right and home ownership might not be as far away I thought?

Quite possibly.

 

If you're saving in the long term then that's a very good sign, but don't forget the banks are selling you a financial product rather than doing you a favour when they say "you can do it, no problem!".

 

My un-expert advice would be to get a 20% deposit to avoid mortgage insurance, plus to show yourself that you've alrady paid one fifth of the property off. Ill just make up some rough figures here as an example, to show the process the Mrs & I went through when buying our unit. But basically if your savings each month plus what you pay for rent are enough to cover the repayments, you're laughing...

 

Looked at places up to 400k

Stamp duty etc, less first home owners grant: 20k

Needed deposit of 20% of 420k  = 84k

 

Loan amount would have been 420k less 84k = 336k

Interest rates are about 5.28% (going off the Westpac Premier Advantage Package I'm on... 100% offset account, interest only, comes with debit and credit cards, $395 flat annual fee)

 

http://hlc1.westpac.com.au/hlc/hlc/Repayments.do

 

5.28% x 336k = 17,740k/year, or $1400/month (Interest only).

Payments of $1862k/month would have paid it off in 30 years

Payments of $2270k/month would have paid it off in 20 years

Payments of $3610k/month would have paid it off in 10 years

 

Since we were paying $1200 rent a month (which would go into our loan instead), and saving an additional $1800 every month, we figured we were good to go once we got our deposit together.

 

Beware that interest rates are mega low at the moment and if they were to go up to 7.5% then you'd have to add almost 50% to all of those payment amounts...

72

OK so every time I got into the bank they try and get me to go through the process to get a home loan (or any loan for that matter). I'm guessing they can see that I'm saving a fair bit of money whilst renting and I have a fair old amount in savings too yeah? That's a good sign that I'm doing something right and home ownership might not be as far away I thought?

Pretty much.

We saved 10% in just over a year (along with both of us renting for 2+ years), didn't have many issues. If you can get up to 20% you'd be ■■■■■■■ it in.

We spoke to a 3rd party broker (Aussie, although I think CBA bought them?).Be honest with them and you'll get a good picture of where you sit.

 

The amount (total) they'd lend two people, only on reasonable money is outright scary. 800k? FAAAAAAA....

73

I would also suggest saving as much as you can. If you have 20% deposit you’re laughing.

Also, you have to be realistic with what you want to spend and take your lifestyle into consideration. The banks may let you borrow up to a certain amount but that doesn’t always mean that’s the amount you should borrow. You want to have some type of buffer and being able to pay more than your monthly repayments helps with equity for the future.

74

Yeah, what em said.  Be careful of overreaching - just cos the bank will loan $X hundred k to you, doesn't mean that it's a smart thing to borrow it.  Rule of thumb that I used was that if the interest rate rose by 2.5%, would I be able to keep up the payments ok?

 

Also, when/if you do buy, spend the first year or two stacking money into the offset account as fast as you possibly can.  Ay any given time, you want to have enough in there to be able to cover repayments and living expenses for 6 months or so in case of being laid off or something similarly unpredictable.  If your credit limit allows it, it might be worth borrowing an extra $10k or so to ensure you can clear this hurdle if you have to.  If it's sitting in your offset account no interest will be accruing on it after all, and it's very comforting to have the buffer.

75

Yeah, what em said.  Be careful of overreaching - just cos the bank will loan $X hundred k to you, doesn't mean that it's a smart thing to borrow it.  Rule of thumb that I used was that if the interest rate rose by 2.5%, would I be able to keep up the payments ok?

 

Also, when/if you do buy, spend the first year or two stacking money into the offset account as fast as you possibly can.  Ay any given time, you want to have enough in there to be able to cover repayments and living expenses for 6 months or so in case of being laid off or something similarly unpredictable.  If your credit limit allows it, it might be worth borrowing an extra $10k or so to ensure you can clear this hurdle if you have to.  If it's sitting in your offset account no interest will be accruing on it after all, and it's very comfortinThg to have the buffer.

This is why I could never do it without a large deposit. I don't think I could handle a 30 year commitment based on the fact that you never know what will happen with job stability and industry stability over the next decade.

 

I think it would have been way easier to make the decision 20 or even 10 years ago for a mortgage, houses were cheaper, not as many bills and gadgets, options.

 

People who know they will always have work are extremely confident career individuals, but not everyone is like that.

76

 

Yeah, what em said.  Be careful of overreaching - just cos the bank will loan $X hundred k to you, doesn't mean that it's a smart thing to borrow it.  Rule of thumb that I used was that if the interest rate rose by 2.5%, would I be able to keep up the payments ok?

 

Also, when/if you do buy, spend the first year or two stacking money into the offset account as fast as you possibly can.  Ay any given time, you want to have enough in there to be able to cover repayments and living expenses for 6 months or so in case of being laid off or something similarly unpredictable.  If your credit limit allows it, it might be worth borrowing an extra $10k or so to ensure you can clear this hurdle if you have to.  If it's sitting in your offset account no interest will be accruing on it after all, and it's very comfortinThg to have the buffer.

This is why I could never do it without a large deposit. I don't think I could handle a 30 year commitment based on the fact that you never know what will happen with job stability and industry stability over the next decade.

 

I think it would have been way easier to make the decision 20 or even 10 years ago.

 

People who know they will always have work are extremely confident career individuals, but not everyone is like that.

 

That's a decision you've got to make in light of your confidence in your industry, job security, expenses etc.

 

Bear in mind that repayments on a moderate mortgage shouldn't be much more than renting (unless you're housesharing or similar).  My repayments went up $300/month when I bought a place, though that's not factoring rates, repairs etc in of course.

 

If you lose your job for long enough to be in mortgage trouble, you'd likely be in trouble paying the rent as well...

77

 

 

Yeah, what em said.  Be careful of overreaching - just cos the bank will loan $X hundred k to you, doesn't mean that it's a smart thing to borrow it.  Rule of thumb that I used was that if the interest rate rose by 2.5%, would I be able to keep up the payments ok?

 

Also, when/if you do buy, spend the first year or two stacking money into the offset account as fast as you possibly can.  Ay any given time, you want to have enough in there to be able to cover repayments and living expenses for 6 months or so in case of being laid off or something similarly unpredictable.  If your credit limit allows it, it might be worth borrowing an extra $10k or so to ensure you can clear this hurdle if you have to.  If it's sitting in your offset account no interest will be accruing on it after all, and it's very comfortinThg to have the buffer.

This is why I could never do it without a large deposit. I don't think I could handle a 30 year commitment based on the fact that you never know what will happen with job stability and industry stability over the next decade.

 

I think it would have been way easier to make the decision 20 or even 10 years ago.

 

People who know they will always have work are extremely confident career individuals, but not everyone is like that.

 

That's a decision you've got to make in light of your confidence in your industry, job security, expenses etc.

 

Bear in mind that repayments on a moderate mortgage shouldn't be much more than renting (unless you're housesharing or similar).  My repayments went up $300/month when I bought a place, though that's not factoring rates, repairs etc in of course.

 

If you lose your job for long enough to be in mortgage trouble, you'd likely be in trouble paying the rent as well...

 

2.5% in the market with the rates as they are is good, but i'd also factor in 5%. Rates came down in a hurry but the opposite can occur as well.

78

Hopefully rates stay where they are for a while... 5% is quite nice thanks very much.

It's nice but won't stay there forever. If the USA get their stuff back together, then China will explode and we'll be shipping out more resources then ever. We'll have a 2 tiered economy getting bigger but rates will definitely go up and possibly quicker than we've ever seen before.

79

 

Hopefully rates stay where they are for a while... 5% is quite nice thanks very much.

It's nice but won't stay there forever. If the USA get their stuff back together, then China will explode and we'll be shipping out more resources then ever. We'll have a 2 tiered economy getting bigger but rates will definitely go up and possibly quicker than we've ever seen before.

 

darth_vader_no.gif

80

Hopefully rates stay where they are for a while... 5% is quite nice thanks very much.

I'm one of the few who wish rates would go up, not least to bring house prices down.