Debt affecting Aussies' borrowing power by $99,000

by John Maguire29 Apr 2016
The average debt among Australians is affecting their borrowing power by a daunting $99,000, according to a new survey from Finder.com.au.

The figures from the comparison website say that the average Australian with a personal loan is in debt to the tune of $12,643. The average credit card balance stands at $3,114, with the average car loan $16,320.

Finder has calculated that if the average Australian were to apply for a home loan with those accumulated debts, that individual’s borrowing bower would be reduced by a massive $99,000.

According to Finder, the borrowing capacity of an individual earning $75,000p.a. is $420,000. In this scenario, the average $12,643 personal loan decreases the amount a person can borrow by $41,000. The average $16,320 car loan shaves off $46,000, while the average $3,114 credit card reduces borrowing power by $12,000.

The formula, says Michelle Hutchison, money expert at Finder, is to triple the value of your debt to determine how much less a lender will be prepared to loan you when purchasing a property.

“A car loan or a credit card may never earn you money and may cost you dearly with some causing home loan applications to be rejected,” said Hutchison.

“Taking on too much debt before you buy a house could result in buyers needing to downsize their desired home substantially.

“With the average house price in Australia at $612,100, any reduction in borrowing power could severely limit what property you can afford to buy.”

For mortgage brokers, dealing with loan-seeking clients in debt can be a delicate business.

Speaking with Australian Broker, Dave Ryman, mortgage broker and financial services professional at Sydney’s 1st Street Home Loans, said, “Psychologically, clients trying to juggle big credit card debt and personal loans can feel overwhelmed and under pressure, which can delay any decisions they make in searching and ultimately buying property.

“People seeking to obtain a home loan with significant debt should be proactive with their broker and work on a plan to reduce things like personal loans and credit cards prior to considering buying property.

“The last thing we as brokers want is a client to feel suffocated with their levels of debt and we regularly recommend they get control of this before even considering a home loan.”





 

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