A survey by lender ME has found that one in five home buyers spent more than their budget limit when purchasing their most recent property.
A good portion of the respondents went over budget by a significant amount, with nearly half of them blowing their budget by $30,000 or more.
Nearly one third exceeded their limit by over $50,000 and one in ten blew their budget sky high by buying property that was $150,000 or more over their budget limit.
The common reasons for blowing their self-imposed property budget were falling in love with the property, underestimating how much they would need, impatience, agent underquoting and being involved in a bidding war, in that order.
The majority of the survey said the fact they had spent over budget on a property meant they felt some sort of pain elsewhere such as emotional stress or damaging other financial goals.
As for the buyers’ budget limits they set themselves, most set their budget based on the amount of debt they felt they would be comfortable with, while a significant number of respondents also set their budget purely based on the maximum amount a lender would lend them.
Patrick Nolan from ME told Australian Property Investor it was important for property buyers to stick to their budget because buying property was such a big and emotional purchase.
“When it comes to spending within your means, there are two points during the home buying process where you need to get it right,” he said.
“The first is when you calculate what you can borrow and while your bank is legally obligated to only lend an amount you can afford to repay over the life of the loan, including at a higher interest rate, it’s your responsibility to ensure the information you provide them, particularly your expenses, is accurate, so they can make an accurate long-term assessment.”
“The second point is at the moment of purchase where it’s the responsibility of the buyers to remain within their set spending limit, particularly if that limit is based on the maximum amount that can be borrowed from the bank.”
Mr Nolan suggested the following three strategies to help you stay within your property budget when he spoke to Australian Property Investor:
Stay patient – there’s always another property.
Keep your feelings in check and if you can’t, get someone else to purchase for you.
Change your property buying criteria of size, location and style.