I often hear people say that it’s too difficult for young people to buy their first home. Reasons given include restrictive lending criteria, high interest rates and high property prices. Now, I don’t necessarily disagree with these comments but as I am a ‘glass half full’ type of person, I try and look on the positive side and for solutions.
By PETER KOULIZOS
Restrictive Lending Criteria
There’s no doubt that straight after the global financial crisis it was very hard to borrow money from lending institutions. Some banks wanted first homebuyers to have at least a 20 per cent deposit and demonstrate genuine savings over a very long period of time. Did you realise that now many banks are willing to accept a five per cent deposit and genuine savings over six months?
I can already hear some of you saying that even six months is hard to save for when you’re paying rent. But did you also realise that some banks are willing to accept your rental history as evidence of savings? That’s correct! If you have been paying rent for at least 12 months, the arrangement is ‘at arm’s length’ and you have an unblemished history of paying on time, some banks will accept this as evidence that you have the discipline to save. You still have to find the 5 per cent deposit but this can come from the First Home Owner Grant and possibly gifts.
High Interest Rates
You think interest rates are high now? Our first home loan was at 13.5 per cent. Some of our friends who bought property just after us were paying more than this. Commercial loans were available at interest rates of just over 20 per cent! The current interest rate may seem high to those who have never borrowed for a home before, but taken into perspective, the current discount variable rate is at about a level equivalent to the 25-year average.
High Property Prices
It’s pretty hard to argue that property prices aren’t relatively high, in relation to a number of indicators, so I won’t bother wasting the ink. For those of us who have owned property for a while, we like the fact that our properties have increased in value markedly over the last ten years. Property prices may drop this year, but the fall will be miniscule. Don’t wait to get into to the market after property prices plummet because they won’t. If the price of the property you want to buy is too high, find another property. The alternative property will need to be further from the CBD, further from the beach, smaller and/or require maintenance.
Can home ownership still be achieved? The answer is YES! Take note of the tips below and you’ll be amazed how quickly you’ll be into your first home. I
f you’re renting, move back home and save the rent and use it for a deposit.
Look for a unit in an up and coming area rather than a house in an expensive area.
Don’t be scared to roll up your sleeves and do some work to fix up the property.
Buy the new car or go on the overseas holiday AFTER you’ve s aved the deposit for
a home.
SAVE AT LEAST 25 PER CENT OF YOUR INCOME until you have a sizeable deposit. Happy House Hunting
Peter Koulizos is a property educator at UniSA and TAFE and the author of The Property Professor’s Top Australian Suburbs – a guide to Australia’s top suburbs for property investors and homebuyers, available from www.businessmall.com.au
You make some reasonable comments Peter regarding 1st home ownership. What will help is:- a fairly stable interest rate and not daily media speculation as to when it will increase; a realistic lending policy by the mortgage providers, no huge policy shifts to suit the flavour of the day, no gimmics, just a good reliable product; perhaps some assistance to the 1st home buyers, no sure about cash incentives, perhaps additional duty/conveyancing concessions and a pretty stable real estate price, fluctulations whether up or down don’t endear much confidence with potention buyers.
Comment by KIm — February 23, 2011 @ 5:01 pm
Some very good ideas Kim. I strongly agree with your suggestion of duty/conveyancing concessions. Cash incentives tend to increase house prices which in turn hurts the very people the government is trying to support; first home buyers.
Comment by Peter Koulizos — February 23, 2011 @ 7:20 pm
Well I certainly am amazed at the message you present….
1. The great Australian dream is over. It is now a dream for a unit in the outer burbs.
2. Those that have made huge capital gains, do not care about you.
3. Move back home and save up…..lol….
You offer no reason why prices will decline and yet that is the most important message you can deliver. Mine is simple.
Asset decline, not just in property, will be slow due to the slow nature of the ageing in most countries around the world. The onset of our “retired economy” 2011 to 2025, will mean that over the next 5 years an extra 1.1 million people become over the age of 65 and then the remaining 3.4 million over the next 10 years or so. This ‘retired economy’ has already stared as the boomers prepare in advance for retirement, dumping any investment properties that are negatively geared.
Couple that with the youngest of the boomers, now 48 and spend has changed to saving, so we witness a paying down of the debt as evidenced by the latest data. This will happen globally and especially here in Australia as the boomers, who have little super, due to it being introduced too late in their working life, create added extra pressure on pensions initially and then later in their grey life aged care and health costs. The boomers consumption patterns have changed around as the bottom end is 48 and has changed from a spender to a saver.
So if it is to decline slowly or quickly will depend on confidence and a better understanding of the ageing challenges we face as a nation. The current issues and MSM talk about aged care are a good example, as they create a lack of confidence generally in the property market and more disincentive to enter the market.
Bubble up = ageing + easy available credit + affordability + consistent high population growth (1970 to 2010)
Bubble down = ageing + unaffordability + rapid population growth decline (2011 to 2020)
Comment by Pauk — February 24, 2011 @ 12:02 pm