What to avoid doing when trying to buy your first home – The Prosperity Project

A credit card could be one of the biggest factors that delays you getting a home loan. Picture / 123rf

With the prospect of another cut to the Official Cash Rate this month likely to improve things for borrowers, first home buyers are being advised they still need to ensure they have their finances in order.

Senior adviser and director of The Loan Market, Cameron Marcroft, told Nadine Higgins on The Prosperity Project podcast that it’s a great market for first home buyers.

“The lending criteria has got a little bit easier now, the rates have dropped as well. When rates are dropping, it also means that the test rate that the banks use to assess you drops as well, so that means clients can borrow more”.

But that doesn’t change the fact that how you manage your finances matters when it comes to getting a mortgage.

For example, Marcroft says your credit card can count against you, even if you don’t have an outstanding balance owing.

“The limit is what the banks use to put against your expenses – the general rule of thumb is about 3% of that limit. So, if it’s a 10k limit, $300 would be put against their expenses every month. So, what it does is it just drags their borrowing ability down.”

He says options to boost your ability to borrow include reducing your limit or getting rid of your credit card for a while.

Marcroft says while banks are no longer going through expenses line by line like they did before the Credit Contracts and Consumer Finance Act (CCCFA) legislation was amended, it’s still important to paint a positive picture.

“If you’re spending large in a certain area and showing certain trends in these bank statements, it’s really important for us to provide commentary around, ‘Hey, we were spending that money because we didn’t have many commitments. Now we’re getting into a large mortgage, we know damn well we can’t spend there’.”

Marcroft says while interest rates are low and banks are busy, he doesn’t expect house prices to boom anytime soon.

“I don’t see that probably happening again for a long, long time. I really think we’ll see a gradual climb in property prices.”

Listen to the full episode of The Prosperity Project for more advice on getting sorted for your first home.

The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.