The Psychology of Property: Why Emotional Decisions Cost You
Written by Ben Herden
When it comes to buying a property to live in, emotions often play a far larger role than most people care to admit. This is natural, of course - it's an exciting purchase, and you need to love it! You're going to spend a lot of time there, perhaps even raise a family there. But where do you draw the line?
We see most first-home buyers buy within their means, these days at least. That doesn't mean they don't have to stretch to achieve the ultimate goal, but generally, as young people, they have time on their side.
Would you believe that it's among some high-income earners over 40 where we see future financial planning troubles? At this stage of life, many individuals have achieved significant financial success and accumulated assets and feel the desire to make decisions that reflect their accomplishments. However, the very success that enables financial freedom can also introduce psychological biases that can result in costly mistakes.
Emotional attachments to prestige, lifestyle aspirations, and the "perfect home" can cloud judgment. For instance, high-income earners may convince themselves that a high-end property purchase is justified because it "rewards" their hard work or meets an emotional vision of success, even when the financials don't align with their broader goals. The fear of missing out (FOMO) in booming markets or the desire for status-driven purchases can cause overbidding, overlooking crucial due diligence, or stretching beyond the budget.
Don't get me wrong - a waterfront property can be terrific! It just needs to be considered with a clear head.
The Illusion of Financial Invincibility
Another psychological trap is the illusion of financial invincibility. Over 40+, many professionals have reached a peak in their earnings and feel secure and bulletproof. This confidence can lead to underestimating the risks associated with property investments — particularly the ability to repay the loan before retirement while also building wealth through other means for retirement (typically with the help of a financial planner and accountant). This might take the form of an investment property portfolio or shares, for example. The sooner you start building wealth, the better off you will be. The more you have borrowed on your home loan, the less you can borrow for these things.
Oversized mortgages can compromise future flexibility, retirement plans, or the ability to assist children or fund other passions.
Strategies to Stay Grounded
To combat emotional decision-making:
Set Clear Criteria: Know what you want your property to achieve, but also consider the future. Your 40-year-old self is going to make very different decisions to your 55-year-old self. Set a long-term plan.
Engage an Unbiased Adviser: Working with professional advisers such as financial planners, accountants and mortgage brokers, who can provide objective insights and a calm head (!) is priceless. Your broker should be able to help you with a debt reduction strategy, which will be made even more powerful with the input of a great financial planner. Yes, that might include the dreaded "B Word" (budget!), but it will be worth it. Paying the home loan off faster while simultaneously investing in your future is so important to start as soon as possible.
Pause Before Committing: Implement a cooling-off period before any purchase, to evaluate whether the decision is based on strategic goals or emotional impulses.
Model Worst-Case Scenarios: Assume the worst: job changes, interest rate rises, market downturns. Can the property still fit into your financial plan under stress? I know quite a number of people who made such purchases during the COVID lockdowns who now wish they made different decisions.
Ben Herden has been a Mortgage Choice franchisee since 1999, following a banking career with ANZ. In 2013, he launched Mortgage Choice Financial Planning in Gymea, creating a more holistic offering for clients seeking to build long-term wealth.
With over 20 years’ experience, Ben specialises in helping professionals increase their net wealth through smart property investment and effective debt reduction strategies. His team also supports first home buyers, property investors, and business owners, offering tailored loan structuring and access to a comprehensive commercial lending and leasing division.
Ben holds a Bachelor of Arts in Communications and Media, along with Diplomas in Mortgage Broking, Mortgage Lending, and Financial Services (Financial Planning). A respected voice in the industry, he has appeared on Your Money Your Call and in Mortgage Choice segments on Channel 10 news, and previously served on the Mortgage Choice Franchise Advisory Council.
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Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and/or other advice as may be appropriate having regard to their particular circumstances.