Calculating Risk Averse Borrowing Power to Purchase Sydney Apartment

Discussion in 'Loans & Mortgage Brokers' started by John Deakins, 21st Jul, 2019.

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  1. John Deakins

    John Deakins Member

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    15th Sep, 2018
    Posts:
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    Location:
    Sydney
    I don't know why I'm even considering the below, as the numbers don't seem to add up.
    If I constrain mortgage costs to be no more than 35% of my net income with a 200 basis point buffer, then it seems I can only borrow $200,000? (Which won't buy me anything in Sydney).
    What am I missing? Am I being too risk averse with the rules I put in place or are my calculations wrong?

    Salary: $92,400 before Tax
    Deposit Amount saved up for first property: $230,000

    Rule 1 --> No More than 35% of Net Income with a 200 Basis Point Buffer
    Interest Rate 5.24% (3.24% plus 200 basis point buffer)
    Mortgage Years 30
    Deposit $230,000
    Loan $200,000
    Property Value $430,000
    Monthly Mortgage: $1,103
    Monthly Living Expenses: $1,500
    Strata & Other Apartment Costs $750 ($9,000 per year)
    Total Apartment Costs Per Month: $1,853
    Net Monthly Income $5,234 (This includes the fact that I have a HECS debt)
    Mortgage Costs as a % of Net Income: 35%
    Residual Cash $1,881
    Yearly Savings $22,570
     
  2. Trainee

    Trainee Well-Known Member

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    Forget sydney. Move somewhere else. Sydney doesnt allow you to be risk averse with what you have.
     
    Last edited: 21st Jul, 2019
  3. Redom

    Redom Mortgage Broker Business Plus Member

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    Haven't quite worked of your calcs, but at a high level it does sounds about right. Your looking to buy while putting <2k per month into your housing exp (function of your 35% net income rule). Overall I think your rules are sensible and prudent too, its just hard to make Sydney work with this profile (although your large deposit really helps!).

    Overall, for Sydney single's on this income profile, its very expensive and housing offerings aren't very good in Sydney at all.

    Melbourne is far better for this, given the stock of apartments near CBD at very low price points. You typically have to go far out in Sydney, or get a studio. Not stating to go there (sorry not very helpful!), but just a general commentary for this type of profile.

    You could probably get 1 bedders 20-30km'ish from the CBD. I'm not so sure they'd be the best purchases though.
     
  4. John Deakins

    John Deakins Member

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    I can't forget Sydney. I have family closeby and this is where I'm employed.
    Have I got a parameter wrong? e.g. I've assumed Strata to be $9000 per year (maybe that's high).
    Is constraining at 35% of net income for mortgage too conservative? Should I up it to 40%? Should i scrap the 200 basis point buffer?
    Any finally, should I include 'renting' out rooms in the calculation (I was hoping to do this, I do not know if mortgage brokers can consider this as part of the loan etc. when negotiating borrowing power and interest rate etc).
    Appreciate a knowledgeable mortgage broker to properly answer my question. (or experience from others who have bought in Sydney and know what it's like)
     
  5. Redom

    Redom Mortgage Broker Business Plus Member

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    - 9k strata is probably a bit much. Half that I think. Can be a lot lower too, depending on what you are looking for.

    - You'll likely be able to borrow a lot more than 200k too. Banks will likely offer you 500k+. It doesn't necessarily make sense to take it though, they just dont apply as much 'risk averseness' as you do.
     
  6. Trainee

    Trainee Well-Known Member

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    Some numbers are weird but thats not the problem.

    You dont have enough resources to be that conservative and buy in sydney.

    Reverse the calc. Find a place you can accept. Say it costs 600k. Figure out all the costs. Can you sleep at night with those numbers? If not go cheaper or keep saving until the you can and hope market doesnt rise on you.
     
    Last edited: 21st Jul, 2019
  7. craigc

    craigc Well-Known Member

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    If want to keep the conservative figures - rentvest. Rent in sydney where you want to live & purchase in other area at your lower comfortable price points - say Brisbane.
    Check your full goals & strategy first on what you want to achieve, then go from there.
     
  8. John Deakins

    John Deakins Member

    Joined:
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    Location:
    Sydney
    Rentvesting is less appealing to me because I'll have to pay stamp duty.
    It's not a case of me necessarily wanting to keep those conservative figures, I actually don't know what is prudent risk as I've never bought a property.
    Would be interested on some feedback on the below updated figures (i.e. is this still way too conservative??):

    Rule --> No More than 40% of Net Income with an interest rate of 5%
    Interest Rate 5.00%
    Mortgage Term 30 Years
    Deposit 230 k
    Loan 290 k
    Property Value 520 k
    Mortgage Cost $1,557 Per Month
    Strata, Council & Water $500 Per Month
    Insurance $58 Per Month
    Total Apartment Costs $2,115 Per Month
    Living Expenses $1,700 Per Month
    Total Expenses $3,815 Per Month
    Net Income $5,234 Per Month
    Mortgage Costs as a % of Net Income 40%
    Mortgage Costs as a % of Gross Income 27%
    Residual Cash $1,419 Per Month
    Yearly Savings $17,027
     
  9. Trainee

    Trainee Well-Known Member

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    Its your life. Your rules. Is there any property in Sydney for about 500k that you would be willing to live in?

    Or, just find the absolute cheapest property your willing to live in, buy that and pay it off asap. Cheaper = less risk. See how you go with retirement.
     

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