The buzz of a first home can turn into a lifetime of misery when interest rates start to rise. Image: Wenjin Chen.
When my partner and I were buying our house back in 2020, like many in my generation, we were mostly just excited to be able to enter the market at all (and as I’ve written before, it was only made possible with parental help). We looked at every run-down, overpriced ex-govvy with delight, all properties automatically becoming our dream house because our dream was contained to just owning a house – we didn’t dare to have too many expectations because we knew our financial limits.
We ended up with a little townhouse as part of a big development. Is it our ideal home? No. Would we have preferred to have a free-standing house with a backyard? Of course. Do we love our home? Absolutely, and we intend to stay here for as long as we possibly can for one important reason: our place is incredibly affordable.
The mortgage repayments over the last 2.5 years have fallen way below market rent, and the property value has increased. We are the beneficiaries now of the insane housing market that presents such a barrier to other people seeking the security of owning their homes. If we can stay here for another decade, we will continue to embed our strong financial position with manageable debt.
Just this past week, we received our renegotiated interest rates as our fixed term ended on our mortgage. Our mortgage will be increasing by a third, which is better than what some have experienced, but it is still a big hike in expenses. But as we readjusted our budget, we were so grateful to our past selves who resisted temptation and borrowed within our means.
When we first started applying for home loans, we were convinced no one would lend to us. We didn’t have a huge amount of savings because of time spent living overseas, but we also had no other debt, which played in our favour.
Though borrowing around $400,000 to $500,000 was probably achievable, we were still very anxious after hearing horror stories of other millennials being rejected because of their abundance of streaming service subscriptions and expensive gym memberships.
Instead, the opposite happened – our bank manager typed our income and expenses into his spreadsheet and informed us we could borrow up to $1.5 million. 1.5 million! At that point in time, both of us were earning just over $100,000 each, which is a lot of money in some ways, and also really not a lot of money in comparison to average salaries for our occupations in Canberra.
Suddenly, our actual dream homes were a possibility. Why buy this pokey little townhouse when we could go bid for the 4-bedroom place we liked the look of on a 650 sqm block? The temptation was real – but thankfully, common sense prevailed.
“We can’t afford to pay back $1.5 million,” we said. We could have just about managed it back then on a 2.29 per cent interest rate. But could you imagine the massive impact the rate changes would have had on us now? No doubt we would be looking to sell, to downsize, probably to a house a lot like the one we’re in.
Was it irresponsible for the bank to make the offer to us? I guess it depends on who you think should be responsible in the broader system for people being saddled with crippling debt, making poorly informed financial decisions, and navigating the complex and inequitable housing system.
But I am very glad that we stayed clear-eyed in the past – we’re still going to be tightening our belts, but we’ve avoided catastrophe by keeping our dreams a little smaller, as sad as that can sometimes feel.
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