Home-buyers stretch their budgets to avoid asking for more cash later amid a rising property market

Potential home-buyers are trying to borrow as much as they can before turning up at auctions amid a rising property market to avoid missing out and having to ask for more cash later.

Some bidders have been taken by surprise by the sharp jump in housing prices over the last few months, fuelled by ultra-low interest rates, government grants and a recovering economy.

Mortgage brokers and estate agents have seen disappointed underbidders with a limited budget go back to the bank and try to increase it for next time.

To save time, buyers are getting pre-approved for the maximum possible loan size initially, instead of a more manageable sum, in the hopes it will help them beat the competition – and that they might not need to use all of it.

Andine Mortgage Brokers’ Andrew Kostanski attended in the past month a couple of Melbourne auctions for clients armed with maximum budgets, and still missed out.

“We’ve set them upper, upper, upper limits for what to bid, and I have told them to stick to those limits and I will do the bidding for them,” he said.

“I haven’t even got to stick my hand in the air. My clients have been blown out of the water.”

Some have lowered their expectations and looked for a smaller place or a suburb farther from the city or else asked parents for help, he said.

In Sydney, Ray White NSW chief auctioneer Alex Pattaro noticed the occasional winning bidder who even went over their limit.

“A couple of people make comment at the end of the auction, ‘I need another $50,000 from the bank’. In a month you might hear that twice,” he said.

“A larger number of buyers are going to auction with their financial capacity already at their limit because they know they’ve got to stretch prior to auction to be confident they can buy at that stretched price.”

The bank regulator is on the lookout for signs of risky lending as housing prices rise, but is unlikely to take any action based on high dwelling prices alone.

Instead, small deposits and high levels of debt compared with incomes will be in focus, as well as the pace of credit growth.

Total housing credit rose 3.8 per cent in the year to February, Reserve Bank figures released on Wednesday show, in the strongest annual growth rate in almost two years.

CBA economist Nicolas Guesnon forecasts a 5 per cent lift in housing credit over 2021, a level he said would not worry the regulator or the Reserve Bank.

“New lending for housing has swelled to be up 44.3 per cent over the year to January, but the stock of housing credit grew at a much slower rate over the year to February (3.8 per cent),” he said in a note to clients.

“The divergence between new housing‑related lending growth and the stock of housing credit is explained by the rate of debt repayment which has accelerated rapidly as mortgage rates have fallen to all‑time lows.”

Loan Market’s Daniel Koutzamanis has been arranging pre-approvals for clients at their maximum budget and then revising the limit down if they manage to buy for less.

“Due to the market, a lot of clients are trying to get their dream property,” he said. “A lot of the time they’re trying to get themselves in the best position possible.”

Others might save extra money during their property search or get help from family, he said.

Mortgage Choice Yarraville’s Garry Megalogenis recommends applying for the maximum amount, as buyers can always reduce their limit later. Mortgage Choice Elsternwick’s Chris Ladley works to educate clients up front as to how much they may need to spend to buy into the neighbourhood.

Buyer’s agent Wendy Chamberlain is watching buyers choose between trying to find more money or looking in a more affordable suburb.

“We went to auction on Saturday, to a property in Box Hill South, and I had $250,000 above the reserve in my pocket and that house sold for $510,000 over reserve,” she said.

But she warned buyers that in a seller’s market, there is little chance they can buy at the bottom end of a quoted price range.

With interest rates unlikely to stay at ultra-low levels in the long term, buyer’s agent Rich Harvey said even when home buyers tried to borrow more, some were cautious about how much extra debt they took on.

“Every buyer I’m seeing is going off to their bank or their broker and saying, ‘How much more can I borrow’,” the Propertybuyer.com.au chief executive said.

“Some are cautious. [One client] only wanted to go to $2.2 million, but went an extra $50,000 because they knew if they could get that price, they’re in.”