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Home Affordability is based on homeowner’s combined income. People choosing not the right ownership type (joint tenancy or tenancy in common), borrowing too much and failing to budget. Double check with the mortgage calculator.


Home Affordability

Are you buying as couple or with somebody else? 

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How much could you save

reducing a 300k mortgage by 50k?


Before you call me unsympathetic with first-home buyers, I experienced it myself and know how hard it was to make the first step onto the property ladder. But lifting up the LVR rate to increase the amount of deposit is not all bad news. Well, it is an obstacle, but if you want to be an homeowner you just play harder. Especially the “take everything for granted” generation needs to learn the disciplines of spending less than earning and using compounding investment returns for cumulating a sufficient deposit.


As an example, if you are able to serve a mortgage, you could instead saving 50k in two years easily to top up your deposit. In this table below reducing the 30 years mortgage by 50k would reduce the total costs by 125,859 Dollars. That is not a bad return for increasing the deposit by 50k, right?










Well, you might think if the property market is “hot” the capital gain for two years is larger than 125k. Maybe—it is a speculation, but for sure by owning a property the holding costs in addition to the mortgage payments would out-perform the “net” capital gain. Especially first-time buyers tend to purchase on the lower end of the market. Upgrading lower-end properties to acceptable standards like considering improvements for energy retention cost more than people expect.




Buying as couple or with somebody else? 


Joint property ownership is a common path into home ownership. The risk is that personal circumstances, relationships and plans can change over time. Unlike most people be prepared and discuss an exit strategy and ownership type with your partner.


You can sign ownership as 'joint tenancy' where all owners on the title own the property together. This is common for relationship couples owning a home together and if one person dies the others take over the ownership.


Another option is a 'tenancy in common' where each partner owns a share. This is more practical when several owners are involved as the share can be transferred by a Will. The legal term “tenancy” describes the right to live in the house. 


Consult your lawyer and discuss these different ways of owning a home together as a property sharing agreement as third option might be the best way to set up property ownership relationship.



Reality check


The basic question is how many months can you survive without your next wage/salary payment? The extension of this question is - can you manage the increase of interest payments by 2%? By a mortgage of 300k you would be paying additional 6000 Dollars interest or 500 Dollars per month more to the bank.


If you are not sure what the answer is, you need to assess your financial situation,  budget and your cash on hand. When buying a house you need cash in a savings account for rainy days to compensate the ups and downs and unexpected payments for repairs, insurance premiums (excess for insurance claims), and so on.  Be certain, financial institutions are not your friend - scrutinize your finances very carefully.




Set a realistic budget


When you know your financial limitations, play safe. How to do that remember;


Record your income versus spending and make sure you stay within your means.

If you can’t save into your rainy day fund, you need to cut spending.


Create a personal household budget that would reveal your disposable income,  possible savings per month and the time frame you need to save for a sufficient deposit. 


Your disposable income (income minus all household spending) is the basis for your budget and tells you what the affordable price range might be.



Take Away

For relationship properties have an exit strategy with your partner and prepare for financial risks. Look at the numbers from the mortgage calculator below, which show that people lose too much money to the bank and speculate for capital gain they might obtain. This example shows details. Don’t be one of them.


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Klauster Blogs lead to a real person, an experienced renter for more than 25 years in Europe, South Africa, Australia, New Zealand and became a landlord/investor  before founding Klauster Properties Ltd in 2006.


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