It’s true that every generation has its financial struggles and set of circumstances can make home ownership seem out of reach.
However, while with record low interest rates, paying off your home for established home owners has never been easier, first home buyers are having trouble getting their foot in the door. And there’s more to this than it just being a generation of smashed avocado lovers frittering their house deposits away on discretionary spending. Although, we do agree, adjusting your expectations about your lifestyle and spending while saving for a house is a must.
The last time the official cash rate was raised was in November 2010, to 4.75 per cent. Now six years later we’re sitting nicely at 1.5 per cent, a record low that’s been sustained for four months. And we can expect this to remain the case, at least for the forseeable future.
All generations may be earning more than before, but baby boomers have had the advantage of building significant wealth over the last 10 years through their property portfolios – especially in Sydney and Melbourne where the price of homes has risen significantly, in fact, close to doubled.
And more time spent in higher education for today’s younger people means more time in casual and insecure jobs that make it hard to juggle study, work and saving.
They might not be the same roadblocks to home ownership that baby boomers experienced, but that doesn’t make them any less pressing, stressful or real for the people dealing with them. So, in this climate, how does a first home buyer get their foot in the door? Here are a few strategies from a Melbourne mortgage broker.
1. Invest not live
Look to make your first home an investment property outside of the major capital cities as a way to get your foot on the ladder. While Sydney and Melbourne prices might have doubled, growth has been more tempered in regional areas. You may lose out on the first home buyer’s grant with this option (which is only for new homes anyway), but over the long term you’ll end up with equity much sooner.
2. Revise your expectations
We don’t want to suggest you should ditch your iPhone, only eat baked beans and never leave the house. However, realistically looking at your lifestyle, income and applying a budget that helps you save is something you should do. As mortgage brokers we can connect you financial planners who can help get you started on a savings plan.
3. Save 5%
Most banks these days want a 20% deposit. Consider that 20% of $750,000 is a whopping $150,000 and this already seems out of reach. However, while not as common as pre-GFC days, there are still some lenders who are willing to offer a very low deposit loan. They won’t lend a full 100%, but will require a 5% deposit. Consider this option carefully as a low deposit loan will also attract a lenders’ mortgage insurance fee and you may also need to provide other assurances such as a guarantor. But it is an option – talk to our team to find out if it could work for you.
Some banks will also take into account your ability to pay rent, and your type of profession and income earned when deciding what to lend you.
Of course these options won’t be for everyone and you should always consider your personal circumstances before making any decisions. Contact the Integrity Finance Australia team for help if you’re a first home buyer looking to get your foot in the door.