When we were back in the UK, it seems banks and building societies used a similar formula for calculating how much money you could borrow when applying for a mortgage.

It went something on the lines of 3.5 times your income if you were the sole person applying for the mortgage or 2 times the joint income if you were applying for a mortgage with your partner.

As we have finally sold our house back in the UK and may now be in a position to buy a pad here in Australia I thought I’d pop into one of the local banks here in Perth to understand how much money we could borrow.

Based on my earnings and the fact that I have a missus and a four year old to support, the bank were willing to offer me a figure which equates to more then, wait for it….5 times my annual earnings. FIVE times!

I was absolutely gob smacked. Sure this would be over a thirty year term but five times a person’s income?

It’s nice to know that we can start to look at houses slightly larger or in better suburbs but is it really worth the risk committing to so much debt?

Getting back to the office later that day and discussing Australian banks lending criteria with a number of colleagues it seems that it’s pretty common practice for banks to lend ‘stupid’ amounts of money to people.

One of the guys in our office (who is also a British Expat) recently managed to secure a loan of $1 Million to help him secure a property.

Sure it was a bridging loan but a million dollars!

Even taking into account the exchange rate this is still a ridicules amount of money to be lending someone. I have no idea how much this particular chap earns but I’m pretty certain that the loan in this instance would have certainly exceeded 5 x annual earnings.

This place really is going to take some getting used to.