Affording Mortgage - Estimating Affordability and Household Savings - Family of 5

Lfranklowe23 on 20/07/2024 - 22:48
Last edited 21/07/2024 - 12:03 by 1 other user

Hey OzBargainers,

Planning to take on a large mortgage ($1.69m / 53% of net income) and currently working on the family budget to make sure this can be done without too many issues. Noting that my circumstances are way better than many Australians out there doing it really tough, I would still appreciate other experience and wisdom in such matters.

At the moment we spend quite a bit, as we aren't paying a mortgage, and I'm trying to see where we can reasonably cut back.

Situation is as follows:

  • Family - 2 Adults - 3 Kids (at public schools and under all under 11yrs)
  • Income (net): $9100/fn ($236,600/yr)
  • Mortgage (proposed) $4850/fn ($126,100/yr)
  • Remainder (for saving / spending): $4250/fn ($110,500/yr)

Given we are spending more than $4250/fn now, do 5-people families currently working to a budget think this is a workable number for their circumstances (my feelings are this works ok). We like the odd holiday, driving locally and wouldn't mind a simple OS holiday every few years.

For reference I calculate our current expenditure to be approximately as follows:

  • Supermarket Food: $630/fn (almost no eating out)
  • Car Costs (petrol,parking,basic services): $480/fn
  • Insurances (house,car,health etc): $426/fn
  • Utilities (gas,elec,internet,phones): $250/fn
  • Medical: $150/fn
  • School: $70/fn
  • Pets: $70/fn
  • Holidays: $230/fn
  • Kids Care (before/afterschool): $240/fn
  • Coffee: $60/fn
  • Sub Total: $2560/fn
  • Other (clothes, household items, presents etc): $1820/fn

I feel this other category at $1820/fn can take some serious trimming without us suffering too much, but wanted to get a gauge on what others are spending in similar circumstances.

For those out there, how does this compare with similar composition families? Are my numbers way out with yours? Does this other category sound excessive?

Finally does a mortgage @ 53% of net income compare reasonably with others out there in similar situations?

Financial Home Loan

Comments

  • Hybroid on 20/07/2024 - 23:04
    +17

    You make enough money to get some professional financial advice. Other random peoples' subjective views and personal spend is not relevant to your case whatsoever. Different people have different priorities and desires.

    • franklowe23 on 21/07/2024 - 07:59

      Professional advice is indeed important and I have sought that already, but it doesn't cover everything and is much more focused on text book results, rather than lived experiences.

      What I was really looking for here was other people's lived experiences to pair with the existing professional advice.

      • mrtin on 21/07/2024 - 08:24
        +1

        Financial advisers will have seen so many different people out there and should be able to share with you more lived experiences than everyday people.
        You didn't like the text book results / the crunched numbers?

        • franklowe23 on 21/07/2024 - 08:49

          The crunched numbers say it is ok, but I'm naturally skeptical of everything I'm told, so don't necessarily believe them.

          Plus if they are using 2-yr old assumptions with the cost of living having skyrocketed they will be well and truly out.

        • May4th on 21/07/2024 - 11:03
          +3

          financial planners unlikely to be helpful for budgeting. they are rarely helpful full stop for most people and I would argue financial self education and forums like this is much more helpful than your average FP

  • Trying2SaveABuck on 20/07/2024 - 23:05
    +3

    how does this compare with similar composition families?
    Are my numbers way out with yours?

    No idea but we spend at least +10k pa on entertainment ie travel, going to movies, shows, playcenters, weekends away, kids sports/music, Netflix etc

    personally doesnt look like you have facted that in but it might not apply to you as much as it does my family

    Does this other category sound excessive?

    it is a big loan - you need to factor in the 'cost' of maintaining a property ie gardening, maintaince, any renos or changes you might make etc

    it is expensive owning a home assuming you're not a tradesman and cant fix most things yourself dont underestimate the cost of 'own' a property

    • franklowe23 on 21/07/2024 - 08:03

      Yes we have a lot of parties and kids sport and that certainly adds up.

      I've allocated the following future numbers that need to come out of the $110,500/yr that would remain post mortgage for house stuff:
      - Rates: $7k/yr
      - House Repairs (no reno's): $6k/yr

      But I could be well short on the house repair allocation as I've never owned a home before.

      • freefall101 on 21/07/2024 - 10:38
        +2

        $6k on the house in the first year is very optimistic and very dependent on the house. I think I spent that in the first month after moving in pretty easily. The removalists, cleaning and such add up to needing either time or money too. Even things like taking the chance to replace old with new, throwing out and rebuying food, extra bits of furniture if you're upsizing. The key thing is to have an extra $20-30k set aside.

        Also need to account for stuff like water rates (you now get the joy of paying for sewerage). Your utilities overall seem a bit low, but it depends what you're buying, If you're buying an apartment it's fine, if it's a big ol' draughty 1970s house (like I did) the power bill goes up a lot in winter.

        I'd also break down your "other" quite a bit further. It's almost half of your spending outside of your loan.

        • franklowe23 on 21/07/2024 - 12:36

          Yes totally agree, moving costs, buying additional furniture and other additional stuff will easily come to $20k+, but hopefully that will be one-off costs and not ongoing.

          I've accounted for water rates (based on what the landlord pays for us renting) and we are moving from one old 1950's house to another, albeit it bigger 1960's house. The current one has insulation, the one we'd purchase not so much. No idea how much extra that is going to cost us to heat, but it could easily be an extra $1000pa.

  • Muzeeb on 20/07/2024 - 23:12

    What are you currently spending on rent?

    Council rates will get pretty high.

    • franklowe23 on 21/07/2024 - 08:03

      Way less on rent, but I've excluded it from all the numbers (as you can see) as it won't be relevant going forward.

      • Muzeeb on 21/07/2024 - 10:40
        -1

        Understood. Just thought if you're paying, for example, $3600pm in rent then shaving another $300pw from outgoings should be doable.

        If you're currently,for example, paying $2400pm in rent then that's a huge difference.

        • franklowe23 on 21/07/2024 - 12:34

          Gottya - the increase from renting to mortgage would be a whopping $3375/fn.

  • Wiadro on 20/07/2024 - 23:19
    +3

    albo is that you?

  • prisonmike on 20/07/2024 - 23:31
    +1

    You are cashing in some major dough. Talk to a mortage broker.

    • WoodYouLikeSomeCash on 20/07/2024 - 23:35
      +2

      Not really, that’s a combined income. Each person is on about $118K which is pretty standard in metro cities.

      Notably, the ACT attracts much higher wages thanks to the heavy public service jobs there.

      • sumyungguy on 20/07/2024 - 23:56
        +2

        If both earned the same salary it would be $165K each but I'm guessing one partner earns significantly more than the other.

        • WoodYouLikeSomeCash on 20/07/2024 - 23:58
          -3

          If both earned the same salary it would be $165K each

          HOW ??

          Income (net): $9100/fn ($236,600/yr)

          236,600 / 2 =** $118,300 ???**

      • franklowe23 on 21/07/2024 - 08:06
        -3

        Yep the income might sound big, but it really isn't that big in today's world!

        • sumyungguy on 21/07/2024 - 11:58
          +2

          Average salary in Australia is around $98K so please no need to humblebrag. You're in a great position to live your best life while you enjoy good health.

          • I like freestuff on 21/07/2024 - 12:49
            +1

            @sumyungguy: As OP said it isn’t crazy in today’s world. Most people in government roles would be closing in on that after 10years. I’m nearly on that after 7 years and overtime just as a cop.

      • Drakesy on 21/07/2024 - 12:55

        *It's a net income, gross income would be closer to $300k.

      • jm7 on 21/07/2024 - 14:15

        I'd have to disagree about APS wages. Unless you're EL1+, your salary isn't amazing. VPS salaries are much better in comparison.

    • franklowe23 on 21/07/2024 - 08:05

      Sadly it doesn't feel like it with a family of 5, but I appreciate the sentiment and we're obviously doing much better than most (which isn't lost on me).

      Have spoken to a mortgage broker and they say it's all good, but they would say that as they want to sell loans.

  • johndowy on 20/07/2024 - 23:41
    +10

    I'm surprised you can get a loan for $1.69m at that kind of income. 53% of your income is going to be stressful. Definitely seems on the high end (risky side).

    • franklowe23 on 21/07/2024 - 08:10

      It is 53% of net income, about 35% of gross income, but given I can't spend gross income I prefer to work with the net income figure.

      Bank seems ok with it.

      • sumyungguy on 21/07/2024 - 13:33

        30% of gross is a commonly applied loan serviceability benchmark, but it was helpful you included net income for your scenario seeing as all other outgoings are post-tax. But as you've found, it comes down to the individual lender.

  • JIMB0 on 21/07/2024 - 00:19
    +7

    I wouldn't do it. You'll be locked into working.

  • mskeggs on 21/07/2024 - 00:21
    +7

    It seems absurd to me that a family earning about three times the average income would struggle paying for a house just a bit above average price, but this is Australia now.
    I think your budget will be ok, but you are locking in staying in high paying jobs for many years. There won’t be much flexibility for another decade or so.

    • franklowe23 on 21/07/2024 - 08:13
      +1

      I couldn't agree more with your sentiments about Australia!!! It is insane and why we have held off so long from buying. For future generations I really want to see house prices fall vs wages so they don't end up in the same situations.

      Yes agreed we are locked into high paying jobs and no flexibility!

      Especially as kids get bigger I find it very hard to predict the future costs of them vs increases in come that may come. Super tricky without having lived it already.

  • boomramada on 21/07/2024 - 00:26
    +2

    a mortgage @ 53% of net income

    Good luck, did bank said no?

    • franklowe23 on 21/07/2024 - 08:14
      +1

      Bank says yes no worries. It is 53% of net income or about 35% of gross income.

      • Nugs on 21/07/2024 - 10:07
        +3

        can you afford it if interest rates hit 10% though?
        .

        • franklowe23 on 21/07/2024 - 12:39
          +1

          Depends what salaries do in that scenario. If they don't move then it would be baked-beans on white bread only, if they move in line with inflation then probably somewhere in the middle.

          We wouldn't be the only ones struggling big time if this happened(s), so a I guess a little safety with the herd.

  • 7ekn00 on 21/07/2024 - 01:11
    +3

    Most institutions won't lend if the repayment > 50% income now days …

    • freefall101 on 21/07/2024 - 10:53
      +2

      It more comes down to disposable income than the specific interest rate. A 3% buffer on a $1.69m means they need to be able to afford repayments of $6400 a fortnight, leaving them $2700 to live off. Plenty of families live on a lot less than $2700 a fortnight after housing costs. OP has listed $2,560 for costs excluding "other", which presumably is what went on the loan application.

      It's cutting it far finer than I would want to, but I can see how the bank approved it.

      • franklowe23 on 21/07/2024 - 12:40

        Yep. Finer than I really want to too, but this is the Australia we live in, even if I wish it was different.

  • Ghost47 on 21/07/2024 - 01:11
    +2

    Finally does a mortgage @ 53% of net income

    Wait you mean your mortgage is going to cost 53% of your income? The general rule of thumb is 30% on all housing costs (including insurance, bills etc). COL increases and increased rates has probably pushed this up for people out there already, so I wouldn't be surprised if people are spending 40-50% now but they might be struggling if it was unexpected. It looks like you have some wiggle room but I would be extremely careful if I were you, they don't call it a death pledge for nothing.

    I also see no mention of an emergency fund which is a concern.

    • franklowe23 on 21/07/2024 - 08:19

      Yep that is correct mortgage is going to cost 53% of net income; approximately 35% of gross income.

      Add to that insurance, rates etc and housing costs are well well clear of 50% of net income. Well less than that in gross income terms.

      We do have an emergency fund (couple of hundred thousand), but it is currently invested in shares (EFT and direct shares), which means it could be worth significantly less than that when we went to call on it - particularly if that was during a major economic shock for example.

  • The Camera Man on 21/07/2024 - 01:48
    +1

    the portion for presents could be cut down in my opinion.

    • franklowe23 on 21/07/2024 - 08:19

      Yes that one is in the cross hairs for sure.

  • Porker on 21/07/2024 - 07:49
    +2

    The banks may appoint a differernt expenditure than what you have listed. As example, my bank applied something like $X0,000 per dependent.

    I questioned it and the response was that while they are young now, they will obviously grow and will require more money.

    As example, your $236k net income might be knocked down to $146k at estimated $30,000 per child. That then may be your starting point to deduct expenses from.

    Consider speaking to a financial advisor, or broker or even the banks.

    • franklowe23 on 21/07/2024 - 08:23

      Spoken to a broker and they and the bank seem to think it is all fine, but they are in the business of selling mortgages so can't exactly be considered independent on this.

      The bank seems to calculate our expenses (using HEMS presumably) at $6600/mth ($3300/fn), which is well less than we currently spend.

      • freefall101 on 21/07/2024 - 10:56

        You might be in for a rude shock when you actually apply for a loan then, I had to fill in my actual spend and that's what they approved the loan on.

        • franklowe23 on 21/07/2024 - 12:44

          Did you have a fully assessed pre-approval? Cause I'm hoping that the fully assessed pre-approval means that this risk is minimal, but I don't know what I don't know here (mortgage broker didn't indicate any issues).

          • freefall101 on 21/07/2024 - 14:25

            @franklowe23: I'm surprised you're fully assessed without doing a self-assessment of spending, APRA guidelines recommend doing both HEM and self-assessment. I did one through pre-approval then again at approval to make sure it hadn't changed, along with submitting months of bank statements to show actual spending.

            It could just be your income is high enough that you're outside the norm, you have enough assets or the bank you're going through has fairly lax standards. Mortgage brokers don't know much beyond punching numbers into a computer, in my experience.

  • MrThing on 21/07/2024 - 08:27
    +3

    cool brag bro

  • barge-in hunter on 21/07/2024 - 08:59
    +2

    Some big numbers all round here - it’s sounds like it’s manageable, based on the assumption that you’ve got a good safety net.

    You mentioned an emergency fund which is great, but I’m genuinely hoping your “insurance fees“ number includes some very decent income and trauma protection.

    Only because you’re proposing a very high percentage of your income being “permanently” allocated to debt for the next 25 years - and if that income were to drop temporarily or permanently, the impact would be huge.

    Other notes:
    $2k spare per fortnight (well done), but life is expensive:
    - no extra into the mortgagee?
    - odd international holiday for a family of 5 (bare min $10k? )
    - house repairs and improvements can be huge and immediate ($35k+ for a bathroom Reno, $2-3k for a broken split system)

    • franklowe23 on 21/07/2024 - 12:42

      Yep good with insurance - assuming the policy is worth the paper it is written on.

  • Benoffie on 21/07/2024 - 09:12

    For me, the car costs seem too high, then i noted you're in Canberra. If this is because of fuel and running the kids to school, that needs a rethink. Public transport is the pits there but that kind of expense, even factoring in tyres and insurance, is too high.

    As others have said, i would be factoring in extra repayments to allow for redraw. Dont know what suburb but $1.6/7 doesn't buy much or fancy in Canberra atm. So renos within 10 years would have to be a factor plus excessive heating and cooling costs.

    • franklowe23 on 21/07/2024 - 12:47

      Yep a $1.7m loan doesn't buy you anything fancy in inner Canberra!!

      Car costs of $480/fn covers 2 x cars including: rego, basic servicing, parking ($11/day) and fuel. We don't actually drive too much, but I can't see too many possibilities for savings there (maybe I'm missing something).

      • barge-in hunter on 21/07/2024 - 13:08
        +1

        Another thing on car costs - does it include depreciation? You won’t own the same cars for the entire length of the mortgage, so at some stage you’ll have to sell your old cars and ‘realise’ the depreciation- coming up with the cash for replacement vehicles

        Or is saving up cash for new cars something else the “extra $2k per fortnight” will cover?

        • franklowe23 on 21/07/2024 - 13:31
          +1

          No it doesn't include depreciation and one of cars isn't exactly new, well loved (over loved perhaps) could be a more accurate description.

          The $2k of extra per fortnight does need to include saving for replacement cars (we're happy with 2nd one's around the $15-$25k price range).

          • barge-in hunter on 21/07/2024 - 13:40

            @franklowe23: That makes sense- might be worth doing some back of the envelope estimates on that and adding it to car costs, just because that $2k seems to be earmarked for a few specific things already

            • franklowe23 on 21/07/2024 - 13:43

              @barge-in hunter: Indeed it is, which is fine as they are all contingency like things (aka building a tiny savings pool in addition to the "emergency fund"), but not fine when (if) all the contingency things need to drawn on at once (which often seems to be the case).

  • Hoju on 21/07/2024 - 09:45
    +7

    For what it's worth, similar to you but 3 years ago.
    Fast forward to now and we have sold that house as the financial burden wasn't worth it to us.
    We took out a $1.5m loan, which was approved based on our incomes at the time and the interest rate at the time. 4 kids, oldest in public primary school.
    Monthly repayments were $5600

    Now we have 5 kids and 2 in high school and the older kids are really eating up the money, possibly quite literally. Our food budget has gone through the roof. We also have catholic school fees of about $6500 each to pay. Not because we are catholic but because we can't afford a private school and the local public high school is a bit sketchy. Those could be changes to take into account.

    My main thoughts are, I eventually hated the job that got us the loan. I moved into something far more flexible that I enjoyed and gave me time with the kids (otherwise why have them at all). End result was a significant financial strain paying for the house, which just wasn't worth it. Oddly it was a huge house that we thought we all wanted, but after living in apartments and townhouses, no one used half of the space and we all congregated together so we will now downsize and look to cut our mortgage into 1/3 at least, and prioritise family holidays and an easier life… YMMV :)

    • franklowe23 on 21/07/2024 - 12:53

      Thanks for sharing, that is very interesting and worthy of considering. We all live on top of each other now, and hence the drive for more space (reduce the fighting), but after years being crammed in perhaps that is actually better for us.

      Need to stay in our jobs is definitely a worry too - it's fine whilst it is fine, but it's not fine when it becomes not fine. Very hard to predict the future…

      How much the kids will eat in the future is for sure a concern. I can easily see our grocery bill going up an extra $200/fn in a couple of years just because they eat more.

      Did you find the kids just got more expensive in general as they got older and if so any guesses as to how much more expensive (beyond just there amazing appetites)?

      Sounds like it has worked out well for you (congrats) and hopefully the same option is available to us if we ever need it - the risk is of course that house prices take a huge dive over coming years and then that option is off the table.

      • p1 ama on 21/07/2024 - 13:56

        How much the kids will eat in the future is for sure a concern. I can easily see our grocery bill going up an extra $200/fn in a couple of years just because they eat more.

        Yeah, but as they get into their teenage years, they also generally start getting part-time jobs, will sometimes eat out or with friends, and you can start asking them to chip in for some expenses.

        Did you find the kids just got more expensive in general as they got older and if so any guesses as to how much more expensive (beyond just there amazing appetites)?

        It's a bit of a rollercoaster, I find that kids tend to get cheaper as they start school - babies are super expensive, then childcare is pretty expensive as well, then the costs whilst they're in school tends to creep upwards over time (usually more extra-curriculars, and more food, more hobbies…etc.), until they get part time jobs, and start spending some time out of the house (in which case, they start paying for more of their own hobbies and personal expenses).

        Then it kinda trails off from there. When I was in university, I chose to live at home, but I paid for my share of expenses, and some "rent".

  • nomoneynoproblems on 21/07/2024 - 10:24
    +4

    We're in a similar boat but have a sub half a mil loan. Not a chance in hell we'd take $1.6mil lol. Might stretch to $8-900k in future unless partners onlyfans takes off but on a PAYG wage? No way. Say good bye to flexibility while you literally slave your existence to the bank.

    • Muzeeb on 21/07/2024 - 10:43
      +3

      Link to only fans please. Potential new member.

    • May4th on 21/07/2024 - 11:44
      +2

      happy to help and review your partner's onlyfans and provide feedback

  • George Washington on 21/07/2024 - 10:37
    +1

    Did u factor in your age and retirement years. Average loan is 30 years. Will you be able to work to 70 etc.

    Holidays expectations. whats the risk factor if one lose their job?

    Remember you don't pay of a loan by paying off the monthly repayment u pay it off by additional payments.

    • franklowe23 on 21/07/2024 - 12:55

      Assuming govt's don't make significant changes to the super system (tinkering should be ok) then super should cover it.

      If they do make significant changes then we certainly have a problem!

  • May4th on 21/07/2024 - 11:25
    +2

    the numbers are very manageable from budget/servicing perspective but I would be asking some questions about your long term plans as a family when taking on the commitment as mentioned above

    1. your age, and whether you are comfortable servicing that mortgage into your 60/70s, considering potential health issues. with the current numbers it's likely you won't have much left to grow your savings/investment outside of property - how much do you have in terms of a liquid capital for emergencies?

    2. kids and schooling - they will be entering HS age soon - ?private school

    3. is this your forever home / home you want to retire in or do you plan to downsize once kids move out? personally I don't want to work till 60/70s to service a large mortgage and prefer to live in something a bit more modest and have money to be able to not work if I wanted to / needed to / travel etc

    • franklowe23 on 21/07/2024 - 12:58

      Thanks for your thoughts.

      1. I certainly don't want to be working into my 60's (20 yrs off), but assuming govt's don't make significant changes to the super system (tinkering should be ok) then super should cover it. If they do make significant changes then we certainly have a problem!

      2. First entering HS in a couple of years. Part of the reason for choosing this house is the school zone - public schooling is woeful in Canberra, but hopefully the local high school turns out ok.

      3. I hate committing to housing (hence the renting until now), so I wouldn't say forever home, but certainly not planning to move out in a couple of years.

  • dtc on 21/07/2024 - 11:35
    +2

    I think people are getting wrapped around the axles on percentages and it’s irrelevant because it’s the $$ that matter

    You have $110k pa to spend outside the mortgage. That’s more than many people have including housing costs; so if it’s possible for most of the population then it’s absolutely possible for you. I’m in Canberra and with 2 kids and 2 cars and a non budgeted lifestyle (because I have paid off my house) and my annual expenditure is around $75-80k plus international travel (every couple of years) and that without even trying (admittedly I don’t have child care fees anymore)

    $110k is plenty. Well, it should be plenty

    From your current budget you need to add $10k for housing costs (rates are high, insurance, a bit of maintenance etc). But your ‘other’ category is really high, I’m sure you can reduce that quite a lot; and medical is high as well unless there is a particular medical issue (I know young kids get sick all the time but you don’t have to see a doctor every time). When you buy a house you usually need to give up holidays for a few years or take a week or two at the coast not at Christmas. Car seems excessive and even with teen kids we don’t spend $315 a week on food. Reduce your meat consumption or something

    Even knocking off a few $100 per week seems easily doable. Yes living off a budget sucks but if you want to buy a big house then that’s the trade off

    If you google up ‘what is your weekly budget reddit’ you can get some good comparisons, although people are not entirely truthful/you get a lot of bragging about how little people spend, so add 25% to most of those responses

    Do I think you need to spend presumably close to $2m for a house in Canberra- no. $1.5m will get you a great house. But if that’s what you want to do, you can easily afford it.

    Edit: all those talking about how long it will take etc - there is always the option of selling up when you retire and the kids have left and buying smaller, fully paid off.

    • franklowe23 on 21/07/2024 - 13:06

      Thanks for your thoughts and I kind of agree with everything you've said and my commonsense brain says you are probably correct. My risk adverse brain always ask "what if" though….(and hence this thread).

      Did you find that the kids got significantly more expensive as they got older? Or about the same (plus some additional food)?

      We're already through the childcare stage thankfully (outside of after-school care for a few days a week).

      The medical line item is very expensive. We don't actually spend that much at the moment, not even close, but I wanted to include some small contribution to the costs of things like 3 x kids braces in the budget somewhere…

      Health insurance (hospital + extras) is another interesting one - for our family of 5 it costs $240/fn and we barely use it. We will be able to claim some of the kids braces on it when we reach that point, but part of me feels it is dead money, but it is hard to cut back.

      Thanks again for your response.

  • Tee Rex Arms on 21/07/2024 - 11:53
    +1

    Take your couple of hundred grand from shares and put straight into the offset

    • franklowe23 on 21/07/2024 - 13:07

      Certainly an option, I just don't like the thought of having everything tied up in Australia's housing bubble.

      • May4th on 21/07/2024 - 13:21

        it's a reasonable option anything you put in an offset is netting you the equivalent of 10%+ per year gross returns assuming you hold shares in your own name. hard to beat the returns and next to no risk with 100% liquidity, you're not putting it in the house it's just sitting in your bank account

        • franklowe23 on 21/07/2024 - 13:26

          Yes this is a good point and perhaps that trumps diversity.

      • souljah on 21/07/2024 - 13:46

        Maybe rethink spending $2m+ on a house then?

        • franklowe23 on 21/07/2024 - 13:50
          +1

          I didn't buy a house for 20yrs+ in this country because I think they are way too expensive vs incomes. Of course that decision hasn't worked out great has it.

          Housing will crash (vs incomes) in this country, will it be in 2024 or 2064 - that is anyone's guess and sadly timing is everything when it comes to these things.

          I do get your point though (which I believe is buy a cheaper house) - as always life decisions aren't quite as simple as that - eg we'd need to leave school zones, commute further etc. Nothing wrong with these as choices they are just all varying trade-offs.

  • ihbh on 21/07/2024 - 11:58
    +1

    You have the current means so could proceed. My two points are: 1. value, 2. risk management

    Have you thought about renting long term?

    Prices are very expensive at the moment. We have relatives - GP and specialist doctor - struggling to buy too and they don't have kids yet, although they are in Sydney, so even more expensive and they probably don't budget yet and might have different expectations. Have a look at Japan after 1990 and China the last few years. Nothing continues forever. How old are you/partner and if you were to buy and say prices dropped 20% or remained flat for decades, would you be okay?

    How secure are your jobs? If one of you were to lose their job and could only find work at 1/2 the current pay, could you cope? For risk management do some scenario analysis.

    • franklowe23 on 21/07/2024 - 13:15

      Thought about it lots. We've been renting for over 20 yrs now as I thought housing was expensive (vs incomes) back then and it is even worse now. I want to keep renting, but the security of being able to lock in our public school zones is the full to buying (I'd say owning, but it is the bank that is owning)

      One day house prices will come back to the long term averages - this means in a "best" case scenario (from the perspective of home owners) they must fall in real terms against incomes, in the most severe case we crash like Japan (in real and nominal terms) and it takes 30 yrs to come back. It will happen, the timing is impossible to predict though and timing is everything when it comes to this.

      Our employment is secure (as in we won't lose our jobs unless we go postal), but salary could potentially drop by 15% for one of us if our employer was to cut back (is that likely, hard to say). In this case we'd need to cut spending further or draw on the emergency fund. If our incomes dropped 40% then we'd need to find an extra $28k/yr in savings (hard, but presumably not impossible - plenty of other people live on less)

  • dp1 on 21/07/2024 - 12:14
    +1

    We're a similar but slightly older family of 5, net income a little lower but mortgage less than half of yours.
    Car costs are much lower (one EV owned outright costs almost nothing to run, other small petrol SUV also owned outright but under 3000kms a year).
    Food bill I'm sticking my head in the sand but sounds right.
    Utilities a lot lower, I'd strongly recommend the first thing you do is get as many solar panels as you can fit on the roof (my 6.6kw system saves $1700 a year).
    In spite of the smaller mortgage it still feels tight some weeks.

    As kids get older major costs can include braces ($8-10k per child), car insurance while teaching them to drive then even more on P plates (unless you are happy to risk it being written off). Teenagers take ridiculously long showers so expect water bills to reflect that.

    Cost of trades is a killer. I'm not sure if it's a national thing or just WA but you can do a short TAFE certificate to work on your own house electrics, it will pay for itself within a few days. Learn basic power tool skills at the men's shed as well if family didn't teach you (I could use a drill and jigsaw by the end of primary school!)
    Get a Bunnings power pass if you can use an ABN. The average homeowner spends $105000 at Bunnings over their period of ownership.

    TLDR: everything costs more than you expected. Think about a cheaper house if you can. But nothing beats the feeling of never thinking about a rent inspection ever again.

    • franklowe23 on 21/07/2024 - 13:19

      Thank you.

      Utilities are expensive. It is based on our current spend for a similar aged, but smaller and possibly better insulated house than the one we'd be buying (neither have solar).

      Much of this is in gas heating costs for Canberra's winter (both houses have ducted gas). We only set the heater to 19.5C currently and aren't home weekdays, yet it still costs us around $1500/yr.

      Can I ask how much your solar system cost to install? I wasn't (aren't) convinced it is worth it as we aren't home to use the solar power during the weekdays - it feels like a battery would be required to make it make sense, but perhaps I've got this wrong.

      Ack on the braces - this hasn't escaped me!!

  • p1 ama on 21/07/2024 - 12:19
    +3

    This likely won't be the advice you are after, but past a certain income threshold, you can realistically afford whatever you want (within reason), and it just comes down to what are the trade-offs you want to make and the sort of lifestyle that you are after. With ~$240k net family income p.a., you are definitely well past that point.

    It is ultimately your decision on whether you want to live in a $1.7m house and what sacrifices this will entail. I know plenty of people at the extremes - those who are happy living in a small 3BR house, and going on overseas holidays every 6 months, and I also know plenty of people who live in mansions, but hardly have anything left for things beyond the basic necessities.

    It's up to you to decide what you want to do with your hard-earned money and what you feel will bring you happiness. Only word of advice is that there's a lot of wankery going on when people talk about how much they earn, how much they spend, and how much they save. It's not a pissing contest for who can earn the most, spend the least, climb the proverbial ladder the quickest. It should be about who lives the happiest life. You are fortunate enough to be in the few (likely < 5%) of people who earn enough to not have to worry about money. Don't make it a problem is what I would suggest.

    • franklowe23 on 21/07/2024 - 13:22

      Ack and thanks.

      I'm certainly not up for pissing contests and that certainly wasn't the purpose of this post. I also totally agree that life is for living and not climbing the ladder (unless that is your thing - it isn't mine).

      So in a way perhaps your post is actually good advice.

      Enjoy the rest of your weekend!

      • p1 ama on 21/07/2024 - 13:37
        +1

        I'm certainly not up for pissing contests and that certainly wasn't the purpose of this post.

        I wasn't trying to suggest that you were, so apologies if you took it that way.

        What I was trying to say is that a lot of people online tend to turn these things into pissing contests, and that the quietest ones are the ones who are out enjoying their lives.

        • franklowe23 on 21/07/2024 - 13:41

          No not at all (absolutely no apology needed!)

    • May4th on 21/07/2024 - 13:31
      +1

      great advice, well said

  • gromit on 21/07/2024 - 12:43

    Your utilities spend seems extremely low for a family. we have household of 2 and we spend more than that on Utilities. you sure you didn't miss something there. The real way to test your affordability is add a couple of percent to the laon interest rate and calculate what that does to your monthly budget.

    • franklowe23 on 21/07/2024 - 13:23

      I think I've accounted for everything. Our electricity is about $55/fn, but our winter gas bill is huge (not so in summer). Water / sewerage costs are currently largely born by our landlord, but I've used the full bill to plan our budget.

      • sumyungguy on 21/07/2024 - 13:51

        Have you checked out the ASFA Retirement Standard? It gives a detailed breakdown of expenses for a retired single/couple which is not quite the same circumstance but the breakdown and allocations may help. I'd say $2,560 pfn for a family of five is on the low side.

        • franklowe23 on 21/07/2024 - 13:53

          Yes I've checked that.

          I have to say I'm not sure about their numbers (in general that is), I know living in retirement is cheaper than living when working with a young family, but I can't imagine living their modest lifestyle would be stress free for many people in modern Australia.

  • Drakesy on 21/07/2024 - 12:53

    Sorry OP, you'll struggle to find a bank willing to lend you that much.

    My household net income is close to yours and the bank doesn't want to lend us more than $1 mill which i think is still ridiculously high (no dependents)
    But hey, if you want to spend your entire life paying off a mortgage and possibly end up retiring with debt then go ahead.

    But to me you're not earning enough to warrant that level of debt, especially with 2 kids. Throwing away $1.5 million in interest repayments over the life of the loan sounds horrendous. Spend another couple of years increasing your deposit and reducing your loan amount, especially in a cooling market.

    • May4th on 21/07/2024 - 13:17

      that can't be right surely, pre covid banks were lending 6-7x gross income as a rough rule of thumb, now maybe 4x, 1mil sounds a bit low for your income

    • franklowe23 on 21/07/2024 - 13:25

      All incomes I provided are net incomes (as I can't spend our gross income; sadly) so perhaps that might be the difference??

      It's actually 3-kids too, which is fun, but not great for the budget.

      And yes a bank would do very well out of us if we go ahead.

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