More than a third of buyers who purchased a property in the last five years borrowed more money than they originally planned to, new research has discovered.
Home loan comparison site Compare The Market polled 510 people who purchased a property between 2017 and 2021, finding large swathes of buyers who took larger risks than they anticipated to get their foot in the market.
Of the new buyers, 36 per cent said they borrowed more than initially planned and 40 per cent said they borrowed the absolute maximum they were allowed to.
A total of 81 per cent said they were confident they could afford their repayments if interest rates were to rise — leaving 19 per cent who were less than confident.
Digital banking expert from Compare the Market David Ruddiman said the fear of missing out is a powerful motivator.
“Buyers have been spooked by forecasts indicating that prices will continue to grow. In some ways they’re fulfilling the prophecy by making bigger offers than they usually would,” Mr Ruddiman said
“The figures show the fear factor has been crucial in driving trends, with 63 per cent of respondents admitting they bought as quickly as possible to avoid surging prices.
“Looking at recent price rises, it’s a strategy that could well have paid off thanks to even greater capital gains. What’s important is that people are prepared to weather the blow of potential rate hikes and inflation in the future.”
Of the polled buyers, just 48 per cent were able to purchase with the recommended deposit of 20 per cent to avoid paying Lenders Mortgage Insurance, or LMI.
Most had a deposit of between 10 and 14 per cent, and a surprising seven per cent said they weren’t sure how much their deposit was.
The findings coincide with gloomy forecasts for expectant buyers that not even a rise in rates will quell Australia’s currently raging property market.
Australia’s housing values are currently rising at the fastest annual pace since June 1989, having increased by an eye-watering 17.6 per cent over the first nine months of 2021.
“We don’t expect the Reserve Bank to increase the cash rate in 2022, and there is fierce competition between banks and non-bank lenders, keeping a certain level of downward pressure on mortgage rates,” CEO of RiskWise Property Research Don Peleg said.
“We expect to see dwelling prices rise by between 5 per cent and 8 per cent in 2022, in the absence of substantial macroprudential restrictions.
“And two years from now we expect to see dwelling prices that are higher than today.”
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