Yahoo Finance Simple money move for Aussies to land $71k cash boost
By ditching their credit cards, potential homebuyers could see their borrowing power increase by thousands.
Homebuyers could increase their borrowing power by tens of thousands by making this one money move, new analysis has found.
Property buyers have seen the amount they can borrow from the bank decrease dramatically as a result of the Reserve Bank’s (RBA) 13 interest rate hikes.
But there’s a little-known way you can improve your borrowing power, without waiting for the interest rate cuts forecast to begin later this year.
Are you a first-home buyer with a story to share? Contact tamika.seeto@yahooinc.com
According to analysis by Compare the Market, a $10,000 credit card limit held by someone earning $100,000 a year would shrink their borrowing capacity from $505,000 to $552,000, a difference of $47,000 if they were to ditch their card altogether.
For someone with a $15,000 credit card limit, getting rid of their credit card could boost their borrowing power by $71,000. Even cancelling a smaller $2,000 credit card, would increase borrowing power by $10,000.
RELATED
Young Aussie home buyer fumes over ‘hidden fees’ worth thousands
HECS hell for young Aussie as student debt stops her buying a home: ‘I’m getting screwed’
Compare the Market economic director David Koch said many aspiring first-home buyers didn’t realise how detrimental credit cards could be to their borrowing power.
“There’s a misconception that the bank will just simply subtract the credit card limit amount from your borrowing power – but that’s not true,” Koch said.
Koch said lenders were more cautious to the risk of recession and were looking at anything that could impact your ability to repay your home loan.
“If you don’t want to cut up your credit card, you could consider lowering your limit,” Koch said.
“Credit cards can be useful in building up a credit history before buying, but only if you’ve met your repayments, paid on time and remembered to pay the annual fee”.
Rate cuts to provide $134k boost
The Big Four banks are forecasting at least three 0.25 per cent rate cuts by the end of 2025, with CBA predicting as many as six by mid-2025.
If just three interest rate cuts eventuate, separate analysis by Canstar found this could increase a single buyer on the average income’s borrowing power to $419,000, up $27,000.
For a dual-income couple, both earning the average full-time income of $98,218, this would boost their borrowing power to $969,000, up $63,000.
Should there be six rate cuts, Canstar found this would increase a dual-income couples borrowing power to $1,040,000, up $134,000.
3 tips to boost your borrowing power
Koch said there are other ways to help improve your borrowing power, including:
Knowing your credit score - this is used by lenders to calculate how risky of a borrower you are so improving it can help boost your chances of being approved
Pay off any debts - banks look at all your financial obligations when calculating your ability to repay a loan, including credit cards, car loans, personal loans and HECS
Consider a joint purchase - two incomes are usually better than one so it can be worth considering teaming up with a family member, partner or friend
Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.
