Home buying: Red flags that could hurt your chance to buy a home and tips to make the most of your budget

The big and little things that you are buying might impact your borrowing capacity, beyond the Reserve Bank of Australia. Here’s how to stay ahead of the game.

Many potential home buyers felt the noose tighten around the dream of owning their own home after the Reserve Bank of Australia’s recent move to lift interest rates to a 12-year high of 4.35 per cent.

And while it might be easy to put all the blame on the RBA, according to the experts, it’s other everyday spending habits that are having just as significant impact on your borrowing capacity.

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“Now more than ever, banks are looking at your spending habits as they work out what kind of risk you are to lend money to. There are certain red flags banks look out for because they might indicate you’re not managing your money as well as you could be,” says Sarah Megginson, personal finance expert at Finder.

Banks will look out for ‘red flags’ on your spending. Picture: iStock.

One to be mindful of is using buy-now-pay-later (BNPL). “Sometimes, you can use BNPL to manage your cash flow every now and then, and that won’t raise too many issues. But if you have multiple BNPL payments coming out with multiple providers, that chews through your disposable income and might suggest you’re living beyond your means,” Ms Megginson says.

Other incidental purchases that can add up are takeaway meals – especially using delivery apps that charge a convenience premium – and multiple streaming subscription services.

“If your disposable income is all being spent on luxuries and you’re not moving the needle on your savings goals, that would be cause for concern from the banks’ point of view,” Megginson says.

Personal finance expert at Finder Sarah Megginson.

Mortgage Choice broker in Blaxland Rob Lees believes it’s credit facilities and debt that are having the greatest impact on borrowing capacity. “If you’re applying for a home loan or looking to refinance but you have a car loan, a personal loan and a large limit on your credit card, your borrowing power could be significantly reduced,” Lees says.

In order to put yourself in the best position to buy a property, Lees says now is the perfect time to start looking at your regular expenses and the services you pay for to see what you can reduce as you start the new year.

“If you’re hoping to apply for a home loan in 2024, every dollar you can save today could make a big difference to your borrowing capacity when you’re ready to apply,” he says. “Buying a home is a big financial commitment and if it’s important to you, you’ll need to make some sacrifices to achieve it, but you don’t have to cut out every treat expense.”

5 WAYS TO BEGIN YOUR BUDGET

1. DO AN AUDIT

Review what you’ve spent over two months and look for opportunities to trim expenses.

2. SHOP AROUND ON YOUR EVERYDAY BILLS

You should compare every 12 months at a minimum on all your regular bills and accounts, like insurance, energy, phone and internet. There’s no need to pay more for the exact same thing.

3. MAKE IT FUN

For some people balancing a budget comes naturally. If you’re not one of those people, set an appointment with yourself every month to go through your money and bills, and attach it to something enjoyable like brunch afterwards. Make sure your budget isn’t all about restriction, too. If it is, much like a diet, you won’t stick with it for very long.

4. GET A HIGH-INTEREST SAVINGS ACCOUNT

With all of these rate rises, it’s easy to find a savings account of 5 per cent or more. It’s free money, so no matter what you have in the bank it should be earning money.

5. SET SOME GOALS

Whether it’s paying off a car loan, saving up a home deposit or chipping away at your credit card balance, set a goal that motivates you to make the best possible money choices.

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