By Lauren Day
A recent article declaring first homebuyers are “stuffed” received a lot of publicity.
The fact many lenders are now asking for a higher deposit has apparently put the Australian dream of owning property to an end.
Did I miss something, or are many banks now still lending as much as 90 per cent, even 95 per cent in some cases, of the property’s value?
Sounds pretty good to me!
The reality is, first homebuyers are far from ‘stuffed’ and here are my reasons why.
- 1. You don’t have to own the castle first
When Aussie Home Loans founder John Symond said the deposits now required are ‘scary’, he was probably talking about the prices needed for his exclusive home suburb of Potts Point.
Gen-Y has it tough these days. We live in a world of instant gratification, where everyone wants the mansion with harbour views straight up.
But you don’t have to own the castle first.
Do what our parents did and spend one hour commuting each way to work, to live in a more affordable suburb. Or start with a one-bedroom unit to get into the market, perhaps a two-bedroom pad if you really stretch your budget.
Sydney semis are now mostly $1 million plus, so units are probably the best option for first homebuyers if they’re keen to stay near the city.
I started off with a two-bedroom unit on the Gold Coast and although body corporates do have their issues, you never need to worry about gardening or fixing common areas yourself. It’s actually great to live in a smaller unit – tidying up is so easy and can be done in about an hour! My husband also started out small, in a not-so-great part of town. He knew he’d never live there long-term, it was just a step to get a foot on the property ladder.
Everyone starts somewhere. Don’t think of your first purchase as a long-term home, but simply a property to get your foot on the property ladder and help you build equity.
Don’t ditch the dream of owning a castle – just realise it might take a little while to get there.
- 2. Think outside the Sydney square
Symond says first homebuyers are stuffed but what he means is, they’re stuffed in Sydney.
As a first homebuyer, think outside the Sydney (or Melbourne) square.
Take a look at the more affordable capitals of Adelaide, Brisbane and Hobart. It’s still relatively affordable to get into these markets, especially if you’re considering buying a unit or something further out of the CBD. You can buy a house on the outskirts of Brisbane for around $400,000.
If you’re really keen to stay within the Sydney or Melbourne circle, you can also find one-bedroom units for this price in older-style buildings.
Then there are coastal regions, which are now starting to pick up again. Affordability on the Gold Coast, along with the Sunshine Coast and even the south coast of New South Wales is, in my opinion, pretty good.
- 3. Go halves with a sibling
There’s a common theory that it’s always better to buy a two-bedroom unit, rather than a one-bedroom unit, if you can. The argument is that two-bedroom units usually get more capital appreciation over time.
Why not go halves with a sibling? Provided there’s a good relationship and mutual trust and an understanding of the agreement, it could make purchasing your first property far more affordable. All bills and rates would be halved.
Obviously the catch would be that you’d have to sell and halve the profit also at a later date. But half of something is better than half of nothing at all.
- 4. You don’t have to live in your first property
Why not buy a property but keep renting with mates in the meantime?
This would have huge advantages.
The obvious one is that you’d receive rent on your property and then simply have to come up with the difference, in order to cover mortgage repayments.
This would make the purchase much easier to hold.
In the meantime, you could continue living at home with your parents or perhaps renting with mates. Either way, you’d save a heap of cash and still be in the property game. As well as that, you could claim a lot more. For example, you could get a tax depreciation report, which would help you around tax time. You could also claim bills and rates and body corp or strata fees.
If you’re negatively gearing, which is often the case when you first start out, you’d also get a tax benefit on the amount you’re out of pocket each year.
- 5. Crazy low interest rates
While prices are rising, interest rates have been falling. Some banks are now offering locked-in interest rates of just five per cent for five years. It seems too good to be true, but that’s what’s on offer at the moment.
These amazingly low interest rates won’t last forever but they make repayments right now much, much easier. Of course, you’re paying a higher price to enter the property market, but if you’re worried about rising rates down the track, there’s also the option of locking in for five years. That’s a long time for any investor.
Don’t forget that cities such as Brisbane and Adelaide are only just picking up again. This means you get the advantage of paying low interest rates on mortgage repayments, while still being able to buy into a market that hasn’t yet boomed liked Sydney.
First homebuyers, you’re not stuffed! You just have to think of smarter and better ways to enter the property market. Anyone prepared to work hard and determined to get a foot on the property ladder can do it. You just need savings as well as a bit of commitment and compromise.