Your budget should be set before you see a single listing
Almost half of Australian first home buyers in 2025 paid more than they originally budgeted — and they were not reckless people. They were buyers whose budgets shifted once they started looking at real listings. is the reason, and it works on property valuers, real estate agents, and everyone else who has ever looked at a price tag.
- 1 in 5 spent at least $50,000 over their limit — adding more than $3,500 a year to loan repayments on a $500,000 budget .
- The most common regret among first home buyers is paying too much for the property (26%) .
- 61% missed out on properties they seriously considered, and 33% were outbid .
The shift from "what I can afford" to "what this costs" happens quietly, long before auction day. The first step to preventing it is understanding why your brain does it.
The first number you see becomes the lens for every number after
is a first identified by psychologists Amos Tversky and Daniel Kahneman in 1974 . The first number you encounter on a topic becomes your mental reference point, and every estimate you make afterwards is an adjustment from that anchor — an adjustment that is almost always too small.
In a landmark 1987 study, researchers Northcraft and Neale gave real estate agents and university students identical property information packs but varied the listed price . Both groups' valuations shifted significantly toward the listed price, even though they had the same objective data about the property. The real estate agents — people who value properties for a living — were just as affected as the amateurs, and most of them denied the listing price had influenced them at all .
This finding has been replicated repeatedly. A 2024 study by Wegrzyn and Kuta found that even completely random numbers shown before a price estimation task shifted participants' valuations by up to 10.5% . A 2023 review of behavioural biases in real estate confirmed as one of the three most significant biases affecting property decisions, alongside loss aversion and herding .
How the trap springs when you start browsing
Here is the sequence that catches most buyers:
- 1You decide to buy a home. You have a vague idea of your budget.
- 2You start browsing listings in your target area.
- 3You see median prices of $977,579 in Melbourne, $1,175,981 in Brisbane, or $1,607,046 in Sydney .
- 4Those numbers become your anchor. Your brain treats them as "normal."
- 5When you find a property listed at $50,000 below the median, it feels like a bargain — regardless of whether it fits your actual financial position.
- 6Your budget stretches to accommodate what the market shows you, rather than what your finances can handle.
You are no longer comparing the price to your budget. You are comparing it to other prices.
Pre-approval is a ceiling, not a target
Getting pre-approved for a loan can make anchoring worse, not better. A lender tells you that you can borrow up to $750,000 and that number becomes a new anchor. Now every property under $750,000 feels affordable, even if repayments at that level would consume 40% of your income.
ASIC's MoneySmart recommends calculating what your repayments would be if interest rates rose by 2 percentage points . If you are pre-approved for $750,000 at 6% interest, your monthly repayment on a 30-year loan is roughly $4,500. At 8%, it rises to about $5,500. The lender approved $750,000 because you can service it today — not because it is a comfortable amount to repay long-term.
Set your ceiling before you open a single listing
ASIC's MoneySmart puts budgeting as the very first step in the home-buying process — before researching prices, before getting pre-approval, before attending a single open home . The reason is straightforward: once you see real prices, your anchor is set.
Step | Action | Why this order matters |
|---|---|---|
1 | Calculate your total income and expenses | Establishes what you can actually afford to repay |
2 | Determine your maximum comfortable repayment | Based on your finances, not on what lenders will approve |
3 | Work backwards to a purchase price ceiling | Including all transaction and ongoing costs |
4 | Write down your ceiling and commit to it | A written number is harder to rationalise away |
5 | Only then start browsing listings | Your anchor is now your own number, not the market's |
The critical difference: in step 3 you are setting a ceiling based on what you can sustain, not on what properties cost. The market median is irrelevant to your personal budget.
Three defences that actually work once the listings start arriving
1. Write your ceiling down and share it. Tell your partner, a trusted friend, or your buyer's agent your maximum figure. When you feel tempted to stretch, another person can hold you accountable. Research shows that stating a commitment to others makes it significantly harder to abandon .
2. Filter listings by your ceiling, not by suburb median. Set price filters on Domain, realestate.com.au, or any listing platform to your maximum figure. Do not browse above it "just to see what's out there." Every listing you see above your ceiling recalibrates your anchor upward.
3. Calculate the real monthly cost of every stretch. Every $10,000 above your ceiling adds roughly $65-70 per month to your repayments at 6% interest over 30 years. Write that figure next to each property you are considering. Seeing "$50,000 over = $340 extra per month for 30 years" is more concrete than seeing a listing price.