How much money can I borrow to buy a house in Australia?

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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.

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Comments

  • Jay
    Reply

    Hi Mark,

    We bought our first house in 2001, just before the prices went nuts in the UK. Even back that we were offered a 100% mortgage, 5x annual salary and over 30 years! Our broker at the time said it was rare and that we should avoid them like the plague.

    When we bought our current house in 2006, we were offered the same again, but this time our broker said they were pretty common now, especially with first time buyers.

    I agree it’s crazy money though. When we do get around to moving to Oz, we’ll be going for something we can easily afford, leaving us a little left over to enjoy life with.

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