It's one of the first questions that anyone looking for a home loan needs to ask themselves. How much can they afford to borrow? This seemingly simple question is actually devilishly difficult to answer accurately, because so much of it is variable. What happens if interest rates change? What if you decide to have children? What if your income drops for one reason or another? And those are just the first few questions that you need to answer in order to figure out your borrowing power. John Bolton, chief Squirrel and mortgage advice wizard, goes into more depth in the video below.
As you can see, there are a lot of factors involved in figuring out your borrowing power, but as JB mentions, there is a good place to start: Your maximum borrowing power (and you don’t always have to borrow the maximum) should be about five times your total household income.
As an example, the average New Zealander earns about $46,000 a year, according to Statistics NZ. Make that into a pair of Kiwis looking for a house, and that jumps to about $90,000 to $95,000. So they would have a maximum borrowing power of about $475,000.
But here’s where the rule of thumb gets a bit inaccurate – depending on where you live in New Zealand, house prices (and wages) are going to differ a great deal, as is the total level of your discretionary spending. Plus you start factoring in things like credit history, changing interest rates and different loan structures, and you may suddenly discover your borrowing power differs a great deal from the average.
This is where a mortgage adviser like the people at Squirrel can help. Figuring out your borrowing power on your own (or through a mortgage calculator) is all very well and good, but it only gives you a very basic perspective of where you need to start. To actually get the right idea and, perhaps more importantly, figure out how you can improve your borrowing power, you need to get the right advice.
To get started down the path of getting the right mortgage product for your needs, get in touch with the team here at Squirrel. We can take you from figuring out (and bettering) your borrowing power right through to signing your name on the dotted line on the contract, and everything in between!
If you'd like to work out how much you can borrow, give Alan, our first home buyer chat bot a whirl! He takes his mission of helping first home buyers very seriously. Ask him things like "how much can I borrow?" or "what's the latest interest rates?" or just ask him to tell you a joke.