Buying a home
Understanding lifestyle vs affordability
21 April 2020
We've all seen the news stories. Apparently, it's more difficult than ever to buy your first home – if you don't win the lottery, then good luck getting a foot on the property ladder.
After hearing these claims, it'd be easy to swear off buying a house forever. After all, why commit to property when it'll just mean years of debt? Better to give up on the dream of owning a home and keep enjoying your lifestyle, right?
Well, here's a secret: many people can do both. With a little planning, they can afford a home loan without it completely ruining their lifestyle. The trick is to be conscious of which lifestyle sacrifices you can live with, and what you can afford without overextending your budget, so you can order your smashed avocado and eat it too!
How do I work out what I can afford?
There's two major questions to consider when you're figuring out whether you can afford a property:
- Can I save a deposit for the home I want?
- Can I make the regular mortgage repayments?
Saving for a deposit isn't something that you can do overnight, unless you come into some surprise money by winning the lottery or discovering a long-lost Picasso in your grandparents' attic (hey, it could happen). It's usually a gradual process, involving sacrifice and careful budgeting over a long period of time. It also helps to figure out exactly how much you'll need for a deposit.
What can I do without while I save?
There's no magic formula for calculating this. Everyone will have a different threshold for which expenses they can live without.
For example, say you travel to Tassie for a winery tour every year. It'd be easy to say that you should cut that spending and put that money towards your house, but is it worth it? If you enjoy the holiday, if it contributes to your mental and emotional wellbeing, is that more or less valuable than getting to your mortgage deposit goal faster? Nobody can answer that except you.
Some people are happy to reduce their expenses down to the bare necessities – living off beans on toast and cancelling luxuries like streaming TV subscriptions – but such a lifestyle can be tiring after a year, or two, or twenty.
Many people find it helpful to set up different accounts, each allocated to different expenses. The greater visibility this offers can help you maintain discipline and stick to your savings goals. Our Suncorp Bank Everyday Options Account lets you add up to 9 savings sub-accounts. For example, you could set up sub-accounts to save for an overseas holiday or annual expenses like car registration or Christmas gifts.
It's important to sit down and be realistic about what you can live without, and what you consider essential to your lifestyle. With these factors in mind, you can form a realistic picture of how, and how quickly, you can get to your deposit savings goal.
What about my regular repayments?
After you've scrimped and saved to build up your deposit, you'll still have your regular repayments to deal with. First, you'll need to estimate how much those repayments will actually be, which you can do using our handy repayments calculator.
Once you have an idea of how much you can expect to repay on a monthly (or weekly, or fortnightly) basis, you can compare that amount against your regular income to figure out whether maintaining those repayments is something you'll be able to manage.
Interest rates can fluctuate a lot over the life of a home loan, and those fluctuations can impact your repayment amounts. If a rate increase will mean that you're suddenly unable to make your repayments, you should think twice about your application. It may mean that you consider a longer loan period, look for a cheaper house, or keep saving for a larger deposit – or hold off on the loan entirely.
If you're concerned about potential interest rate rises, you can consider a fixed rate loan, which will lock in an interest rate for a set period – usually between 1 and 5 years. You can also fix part of your borrowed amount and have the other part on a variable rate loan, which will allow you to reap some benefit in the form of lowered repayments if interest rates fall.
How insurance can help
You may be confident that you can meet your regular repayment obligations, but if you suddenly find yourself without an income, that could have a serious impact on your ability to pay. That's where Suncorp Income Protection Insurance can help.
Suncorp Income Protection Insurance is an insurance policy if, due to illness or injury, you become unable to earn money through your usual means.
Suncorp Income Protection Insurance could offer you up to 75% of your monthly income (up to $10,000 per month) if you're unable to work due to illness or injury, paid to you after the waiting period.
Getting ahead of your repayments
Once you've established that you can take care of your regular minimum repayments, you can consider ways to get ahead of your repayments, reducing the amount owing on your loan and potentially saving you big bucks in the long term.
There are a few ways to achieve this, including:
- An offset account, which lets you use your savings to reduce your interest payable;
- Regularly making extra repayments, if your loan allows you to do so without penalty (check your paperwork before you start doing this!); and
- Making lump sum payments into your loan, which can be a good use of unexpected windfalls such as a tax return or cash prize. Again, check that you're able to do so without incurring a penalty.
Ultimately, whether you can afford to purchase that home you have your eye on is a decision that only you can make. To put yourself in the best position to make it, always be honest with yourself about what you can afford, and what sacrifices you're prepared to make.
Good luck, and happy house hunting!
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document and Terms & Condition before making any decisions about whether to acquire a product.
Suncorp Income Protection is issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL Life uses the Suncorp brand under licence. TAL Life is not part of the Suncorp Group. TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260 (TAL Direct) has been authorised under an arrangement with the insurers to enter into, vary or cancel insurance cover and manage, administer and settle claims on behalf of the insurer as if it were the insurer. TAL Direct and TAL Life are part of the TAL group of companies.