First time buyers don't grasp 'ongoing affordability'

By Michelle Rock

Many first time buyers don't fully understand that mortgage affordability is an ongoing issue that has to be considered against their 25-year mortgage term, according to a market analyst.

Kate Faulkner suggests mortgage lenders should do more to ensure that first time buyers have fully understood the advice given to them by their financial adviser about affordability. She does however comment on the difficulties for mortgage borrowers to fathom how their financial status and mortgage interest rates might change over the loan term of their mortgage.

Ms Faulkner says that since 2007 property purchasers have only known mortgage products with 2 and 3 per cent interest rates, and it can be difficult for them to fully understand that the base rate of interest will increase and thereby affect their ability to afford their mortgage. She thinks first time buyers don't "always hear what advisers say about affordability being ongoing".

Ray Boulger of John Charcoal also commented on the difficulty financial advisers face when discussing the subject of long-term affordability with their clients. He says that some first time buyers and mortgage borrowers "tend to remember what they want to hear", and can fall into the trap of thinking low interest rates will be around forever. He also said that mortgage applicants can "only absorb so much information" when meeting with their mortgage adviser, and that it is difficult to "forecast what is going to happen for five years".

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