Bor­row­ers need to do their home­work

Money Magazine Australia - - FROM THE EDITOR -

I was dis­ap­pointed in the ad­vice pro­vided by the two ex­perts (“What to buy with $80k”, Septem­ber) and to find that the amount you can bor­row to pur­chase a prop­erty seems to be con­tin­gent only on how much of a de­posit you can raise! What hap­pened to any dis­cus­sion about in­come and cal­cu­lat­ing how much you can af­ford in re­pay­ments?

There also was no men­tion of the fact that there will likely be an in­crease in in­ter­est rates (or sev­eral), which could sig­nif­i­cantly af­fect the abil­ity to re­pay a loan. Thank­fully Jane Slack-Smith did men­tion hav­ing a buf­fer in case of be­com­ing a one-in­come fam­ily but, re­ally, where is the ad­vice to peo­ple to do their own home­work and to give them the tools to be able to do that?

It is up to the bor­rower, not the lender, to de­ter­mine the level of debt that is man­age­able over the long term.

Kate

ED: Thank you for your feed­back, Kate. You are ab­so­lutely right – you can have the fat­test de­posit but with­out ser­vice­abil­ity you won’t get the go-ahead from any bank. Ask the Ex­perts cov­ers many points and both of our ex­perts did touch on ser­vice­abil­ity. Ja­son Petersen sug­gested the need for a com­pre­hen­sive fi­nan­cial plan so as to only take on as much risk as the bor­rower could af­ford and Jane dis­cussed the need for a buf­fer. But I ap­pre­ci­ate that more could have been said.

I be­lieve both lenders and bor­row­ers need to be re­spon­si­ble when it comes to ser­vice­abil­ity. The royal com­mis­sion into bank­ing will no doubt cre­ate some big changes on the lend­ing side. I'm not sure how much longer banks will just rely on the house­hold ex­pen­di­ture mea­sure (HEM) bench­mark when as­sess­ing loans. One thing is for sure: it will be harder to get a loan.

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