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Should you scrounge and save, living a bare minimum lifestyle, to save up a deposit and chase the Great Australian Dream of owning a property? Or, would you rather afford the luxury you can today, renting where you like, living as you desire, and not care about owning a piece of land? Renting for life cannot be that bad, is it? Or, in the face of rising property prices and changing expectations, should first home buyers opt for alternate investment strategies such as rentvesting?

Happy woman jumping in the air in Sydney, with the cityscape in the background.

In the past decade, the median house price in Australian capital cities has boomed to the exorbitant figure of $660,000 presently. CoreLogic reports that housing values in combined capital cities increased by 10.9% over the past 12 months, while units and dwellings saw an increase of 7.3% and 10.5%, respectively. Sadly, the wage growth failed to match up this increase, growing at a modest rate of 3% per annum.

It is no surprise, thus, the quarter yard housing dream has changed today – block sizes across Australia continue to grow smaller, even though the floor size has increased over the period. Apartments and high-density living are becoming common, with backyards being bartered for balconies or some kind of outdoor entertainment area. The great Australian dream has surely undergone a major overhaul.


Young Australians feeling locked out of the property market

Recently, the Attitudes to Housing Affordability: Pressures, Problems and Solutions report by Australian National University pointed out that 75 percent of the 2,513 persons who participated in the survey believe that owning a home is part of the Australian way of life. However, this belief is softer with younger people, at 60 percent for 18-24 year olds.

Interestingly, a larger percentage of people (68 percent) cited emotional security and stability as main reasons to buy a house compared to 51% purchasing one for financial stability.

To fuel their property ownership dream, 28 per cent of those surveyed economised on luxuries while 18 percent economised on essentials to meet mortgage or rent payments.

However, the major finding of the report revealed a nightmare for many – one out of five Australians is struggling to keep up with their mortgage payments. In fact, 87 percent of the participants expressed concern that future generations will not be able to afford to buy a house, thanks to the rising costs.

According to a report by CommBank, the average loan size for a first home buyer has escalated to $316,300 today, with up to 21% of a first home buyer’s gross weekly income going towards the mortgage. Add to this the increasing cost of living and the moderate wage growth, it is not surprising that Gen Y feels locked out of the property market. The survey reports that only 44% of the males who participated believe that the great Australian dream is still alive. Overall, however, the picture looks better with 48% reporting their ‘dream’ to be alive and 52% claiming to harbour a redefined ‘dream’.

To ease out the situation, the Federal budget introduced some effective measures to help first time buyers get a foothold on the property ladder (read more here). The first home owner grants (Read about the boost in FHOG in Queensland) continue to be a welcome relief for first home buyers struggling to save a deposit.


The changing ‘Australian Dream’

A whitepaper by Mortgage Choice and Core Data sheds light on ‘The Evolving Australian Dream’. It reports that the original dream of owning a freestanding house has seen a major shift – with 87% of the participants in the survey saying it is difficult to achieve it. However, owning ‘any kind of property they can call home’ remains the top goal for 80% of the participants.

The reasons that have shaped this change are many – home loan affordability issues and saving a deposit topping the list of hurdles that despair many home buyers. Add to it the changing lifestyles, with more Australians preferring to buy easy to maintain apartments, closer to the city and their workplaces, saving them both time and money.

Rightly then, 70 percent of the participants in the above survey believe the new Australian dream needs to be more in line with reality and our lifestyle choices.

Thus, it is okay to rent forever if the numbers don’t add up for you to purchase in your preferred location – or you simply don’t have the time to maintain your own home or prefer not to be rooted yet.

Many people in European countries rent throughout their lives, but considering that property ownership is deeply rooted in our psyche, the savvy Australians have discovered the middle path of rentvesting – renting where you want and buying where you can.

If you are ready to compromise a little on the traditional property buying dream, you could invest in the future without giving up on the present. As a renter, you end up paying your landlord’s mortgage who continues to avail several tax benefits. As a rentvester, however, you also pay some amount towards your own investment property while availing negative gearing and other applicable tax benefits available to investors. The incoming rent and regular savings can help you build equity much faster, while you enjoy the lifestyle you have been used to, staying where you like, compromising only a little to eventually own your dream abode.

“Owning a home is not impossible, albeit more difficult today, especially if you don’t have financial support from parents. For many youngsters, parental guarantees have been the step board to high LVR home loans, laying the foundation of their real estate dreams. However, with the right financial discipline and an experienced broker to guide you, you can still hope to buy a property with as low as 5% deposit and rental history instead of genuine savings,” explains Noah, a HashChing mortgage broker.

He adds: “Start by assessing your finances to ensure if you can really afford to buy a property at the moment. You can use online calculators to crunch the numbers and create an effective household budget. What is most important is to stay positive and be open to alternative strategies such as buying an investment property as your first home, buying an apartment instead of a house and scouting for upcoming suburbs that are still cheaper instead of the popular suburbs that have already peaked.”

Noah also informs prospective home buyers and investors that owing to the increasing competition in the mortgage market, today, borrowers can negotiate for better rates, especially if they have a good credit score and a reasonable deposit. Currently, you can access home loan deals starting as low as 3.59% (variable) pa.

“Compare home loan deals online to get the most competitive rates in the market. However, don’t fall for the lowest rates on offer,” warns Noah. “Features such as an offset account, free additional repayments, etc. can help you save much more over the life of your loan. Especially if you are a first time buyer, speak to a mortgage broker to understand your situation better.”

HashChing is an online mortgage marketplace, offering competitive fresh and refinancing home loan deals from over 60 lenders across Australia. Fill in the form below and we will put you in contact with a mortgage broker who can help assess your case for a fresh loan or switching over to a lower interest rate. It could potentially save you more money on your home loan.

 

By Vidhu Bajaj
HashChing Content Writer

 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.