Plastic’s Not Fantastic for First Home Buyers
First home buyers looking to get a foot on the property ladder in the New Year would be well advised to avoid turning to
credit cards to pay for Christmas, Mike Pero Mortgages says.
Number-crunching by Mike Pero Mortgages has found that a couple with a joint income of $130,000 seeking a home loan
would have their borrowing power slashed significantly just by having a credit card. It put the same application through
each of the banks on its panel of lenders to find out the impact different credit card limits have on borrowing power,
the results were:Credit Card
Limit$5,000$10,000$15,000$20,000$25,000Reduction in Borrowing Power-$28,000-$47,000-$80,000-$97,000-$120,000
“That’s not the total owing on a credit card – that’s just the impact of having one,” says Mike Pero Mortgages chief
executive Mark Collins.
“Many first home buyers tend to think it’s okay to have credit cards as long as they don’t ever draw down on them.
That’s not how the banks look at it. They have to consider that at any point you could draw down on the full amount, so
they look at future potential credit card debt when calculating serviceability, rather than just the amount owing.
Although there will be a relaxing of lending restrictions next year, the fact remains banks are still taking a very
conservative approach to loan serviceability,” said Mr Collins.
People planning to seek mortgage borrowing in the New Year could help their cause by paying off credit cards and then
getting rid of them completely.
“The plastic tends to get a workout leading up to Christmas and over New Year, so our advice is to be very wary of
taking on too much credit card debt.
“Getting rid of credit cards can make a huge difference to the amount you can borrow. For example, when a credit card
with a limit of $10,000 can affect your borrowing power by nearly $50,000, that could be the difference between getting
the property of your dreams, or missing out completely.”
Those that think their credit limit may impact their ability to purchase property should seek the advice of a mortgage
broker, said Mr Collins.
ENDS