According to a new survey by Melbourne-based ME Bank, 22% of homebuyers exceeded their spending limit when they purchased their most recent property.
Of those who went over budget, 46% exceeded it by $30,000 or more; 30% exceeded it by $50,000 or more; and 10% exceeded it by $150,000 or more.
The most common reasons for exceeding their budget were: falling in love with the property (52%), underestimating the required budget (28%), impatience (20%), underquoting by an agent (15%), and getting embroiled in a bidding war (12%).
Sixty-four percent of those who exceeded their budget admitted some sort of negative consequence. Twenty-eight percent said their overspending impacted other financial goals, 27% said they had to make changes to current spending, and 24% said they experienced emotional stress.
Homebuyers based their personal limits on a variety of factors. The most common basis for spending limits was what they were comfortable spending to avoid excessive debt (55%), other financial commitments (52%), the maximum they could borrow from their bank (46%), and basing the budget on what they assumed was the market price (45%).
“Buying a home is one of the biggest and most emotional purchases you’ll ever make. With so much at stake it’s important to stick to your spending limits,” said Patrick Nolan, ME Bank’s general manager of home and personal loans.
“When it comes to spending within your means, there are two points during the home-buying process where you need to get it right. 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.”
Nolan said those who remained within their budget cited the following factors for their success: patience (74%), avoiding auctions and buying privately to avoid bidding wars (27%), buying a home in an alternative location (21%), and adjusting their property expectations by buying a smaller house (13%).
ME Bank’s survey was based on a representative sample of 1,000 Australian property buyers, and was completed in March 2018.
