Don’t give up on your home ownership dreams just yet

Beautiful living room dreaming of a home loan

An alarming 72% of Australians between the ages of 18 and 34 have given up the dream of home ownership, according to a survey by the Sydney Morning Herald.

Overall, 63% of Australians believe homes have become unaffordable for young people, compared to 57% a year ago.

And 49% of those renting a house believe they’ve been priced out of the market.

This negative view is despite the fact the nation’s median property price fell 7.9% during the year to February 2023, according to CoreLogic.

There appear to be two main reasons why younger Australians are so gloomy about their chances of climbing onto the property ladder to home ownership.

Reason 1: High borrowing rates mean they can’t qualify for home finance

Over the past year, the cash rate has risen 10 times. Home loan lenders are now charging over 5% for an average home loan. Because lenders must include a buffer of 3 percentage points, potential homeowners are being assessed based on whether they can repay a loan with an 8-9% mortgage rate.

If someone was assessed for a $500,000 home loan, repayable over 30 years, they’d need to afford a monthly instalment of $2,685 at 5% but $4,024 at 9%.

Many who want ot transition to home ownership don’t earn enough to qualify for the higher repayment, so feel they can no longer buy a home.

Reason 2: Unable to save for a deposit

During Covid-19, home values increased. And although values have been falling since early 2022, the market has not given back all the massive gains it made during the pandemic.

To buy in Sydney, someone would’ve needed to save about $55,700 more for a median-priced house in the December 2022 quarter than in the December 2019 quarter, according to Domain.

Similarly, in Melbourne, a median house in December 2022 would’ve required a deposit that was $26,000 higher than before.

In December 2022, a 20% deposit on a median house across Australia’s capital cities exceeded $200,000.

Coupled with the rising cost of living and rent increases, Australians feel they can no longer save enough to put down a deposit.

What can you do to keep the homeownership dream alive?

There are three main ways you could potentially still afford to buy:

1. Pay LMI

Some mortgage lenders will accept a deposit of just 10% or even 5% if you’re willing to pay lender’s mortgage insurance (LMI). Some lenders are even willing to add the LMI to the home loan, which saves you some of the upfront costs.

2. Make use of government schemes and incentives

The federal government has schemes to help first home buyers, like the First Home Guarantee scheme. This scheme lets eligible buyers purchase a qualifying property with only a 5% deposit and without having to pay LMI. There is also the similar Regional First Home Buyer Guarantee, which is available to Australians living and buying in regional areas.

Many states also have grants and subsidies for first-home buyers. For example, in Victoria, first-home buyers may qualify for a $10,000 grant and land transfer duty waiver.

3. Work with an expert mortgage broker

Mortgage brokers are familiar with mortgage lenders’ requirements and government incentives. They can help you put together a mortgage loan package that could suit your budget. They could also suggest other creative ways you could enter the market, like buying with a friend or in a cheaper area.

If you’re a potential first home buyer, don’t give up. NMC Finance is an experienced home loan mortgage broker and may be able to help you get on the property ladder. Contact Nathan Coad on 0498 766 639 or for more information.

* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.

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