Young Australians taking out loans to buy a fancy new car are at risk of missing out on home ownership, a leading mortgage broker has warned.
Property prices are set to soar further due to continuing high demand and the Albanese government’s expansion of the home guarantee scheme, which allows first-home buyers to buy a property with only a five per cent deposit.
The other 15 per cent will be covered by the government, allowing the purchaser to avoid paying expensive lenders’ mortgage insurance.
Previously capped at 35,000 first-time buyers annually, the number of eligible first-time home buyers able to access the scheme will be uncapped from October 1.
This means home approval capacity will play a bigger role than ever before, which is calculated on the ability to make monthly mortgage repayments based on existing debts.
Sydney mortgage broker Julian Finch said car loans are ‘toxic’ for borrowing power, as they add hundreds of dollars to monthly financial commitments.
He has seen clients lose up to $150,000 in home loan approval capacity simply due to financing a new set of wheels.
New cars begin to depreciate the minute they leave the dealership, unlike property assets, which appreciate.
Finch Financial chief executive Julian Finch (pictured with his wife Nicole) has blunt advice for Australians wanting to buy a home sooner
Young Aussies are urged to prioritise home ownership over a fancy new car to maximise their home approval and borrowing capacity (stock image)
‘We’re in a situation where the property market is about to explode,’ Mr Finch told Daily Mail.
‘Come October 1, buyers are going to be competing with an unlimited number of others who will be eligible for the government scheme, which will drive up prices.
‘So people need to maximise their borrowing capacity, because if they’ve got other loans, it’s going to significantly lower their capacity.’
Those looking to get their foot on the property ladder sooner are advised to hold off on the new car and save towards a home deposit instead.
‘If you get the car first and take out a loan, buying property becomes more difficult,’ Mr Finch explained.
‘If you buy the house first and then a car, you can still get a loan and it will have a lesser impact on your credit rating.’
‘You’ll also be able to get a better interest rate on your car loan, as the banks will consider you a better risk than those who rent or live at home.’
Hidden ongoing costs such as car insurance, registration, fuel, and maintenance are also taken into consideration by the banks.
Property prices are tipped to soar come October 1. Pictured are potential home buyers at an auction in Sydney
Julian Finch has seen has seen clients lose up to $150,000 in home loan approval capacity due to car loans
For aspiring homeowners who need a car to get from A to B, Mr Finch suggested buying a cheap and reliable second-hand vehicle outright.
‘This way, the car is viewed as an asset by the bank, not a liability,’ he said.
‘You’ve got to live within your means.
‘It’s devastating to watch someone price themselves out of the property market for the sake of a car that will only lose value.’
For those not planning to buy property in the next five years, a car loan is okay.
‘But you need to ensure the car loan is paid off before you apply for the home loan,’ Mr Finch advised.
Credit card and personal loan debts also impact borrowing capacity.
‘I have a client in Queensland who had one of the worst credit files I’ve ever seen, with 15 unsecured credit loans,’ Mr Finch said.
‘He had to refinance his property investment to further consolidate his loans.’
Mr Finch also advised sticking to a good savings plan and to reconsider unnecessary expenses.
‘You don’t need 10 different streaming subscriptions all at once,’ he said.
‘And don’t just agree to your car insurance renewal quote every year. Use it to shop around and get a better deal.’