One in five homeowners admit they borrowed too much

Homeowners who snapped up properties in the boom market of 2020 and 2021 have admitted they now have a major regret about one aspect of their purchase.

Gen Z home buyers were the most likely to regret the amount they borrowed.

An alarming share of recent homebuyers have admitted they got a little carried away in the frenzy of the recent housing boom and borrowed too much money.

More than one in five homeowners across the country said they’ve now realised they should have borrowed less from the bank, according to the Finder.com.au polling.

It’s the latest sign that the climate of FOMO, or fear of missing out, that governed the market during the early pandemic in 2020 and 2021 has swiftly turned to regret now that interest rates are rising and real estate values are falling.

A worrying 693,000 households have too much mortgage debt, the Finder research estimated. This could climb if interest rates continue to rise in early 2023 as widely expected by economists.

Governor of the Reserve Bank of Australia Phillip Lowe had told borrowers last year that rates would be on hold at record lows until 2024. Picture: Jeremy Piper

Sarah Megginson, home loans expert at Finder, said it was a precarious situation for many.

“Many Australians bought property during a record low interest rates environment and didn’t plan for what they’d do if rates went up,” she said.

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“Now as interest rates skyrocket – many have been pushed to their financial limit.

“Buying a property when interest rates were low made many people feel like they were getting a good deal.

“But if you didn’t stress test your budget to see how much you’d be paying when rates increased, you could be feeling a lot of financial pressure now.”

The survey of 310 mortgage holders found Queenslanders (26 per cent) were the most likely to have regrets about how much they had borrowed, followed by NSW borrowers (25 per cent).

Men were more likely to have overcomitted – with 23 per cent admitting they had borrowed too much on their home loan, compared to 19 per cent of women.

Finder analysis showed the average home loan rate has almost doubled – from 3.45 per cent in April 2022 to 6.15 per cent in November.

Based on a $500,000 home loan – the average monthly repayment has grown from $2,231 to $3,128.

That’s an annual increase from $26,772 to $37,536 in just eight months, with further increases predicted.

Pressure cooker auctions last year encouraged home buyers to spend big and many blew their budgets.

The survey found the youngest property buyers were the hardest hit – with one in four Gen Z buyers (25 per cent) admitting they had borrowed too much.

Ms Megginson said Aussies who borrowed too much needed to take control of the situation as soon as possible.

“Call your lender today and ask if there’s any wiggle room. You’ll be amazed to see what they can offer you to prevent you from moving to another lender,” she said.

“Borrowers should let their lender know immediately if they don’t think they’ll be able to make a repayment so they can discuss financial hardship options instead of defaulting on the loan. You might be able to take a mortgage repayment holiday, or move temporarily to an interest only loan.”

Originally published as One in five homeowners admit they borrowed too much