Housing too expensive for many Aussies

Two-thirds of Australians view the housing market as expensive, with half expecting property prices to rise over the coming 12 months, a report shows.

The ING Direct report also found seven in 10 Australians think it’s more difficult to buy a home now than it was 10 years ago, and have concerns that younger people won’t be able to afford a property in the future.

The challenge of getting on the housing ladder has inspired a growing trend for first home buyers to obtain financial assistance in order to get the keys to their first property. The average age of a first home buyer is now 26 years old, with one in three borrowing from the “bank of mum and dad” to put their housing finances on a firmer footing.

Yet while getting a financial leg up is becoming more common, it’s not a new phenomenon. The research found that the younger the age group, the more likely they are to have received financial help. More than half of the 18 to 24 year old homeowners received money either towards their purchase or to help their home loan repayments, compared to 38 percent of 35 to 44 year olds and only 22 percent of over 55s.

However, despite the perception that housing in this country is expensive, three-quarters of Australians still agree it’s better to buy than rent, with renters spending a higher proportion of their income on rent at 35 percent compared to homeowners spending 30 percent on mortgage repayments. Most also gave property the thumbs up as a good investment option.

So if you’re thinking of making the leap into homeownership this year, consider this guide to help you get on the right track.

Tips to help you buy this year

First, you’ll need to set a budget and start a savings plan. There are some great online budget planners available now, such as the federal government’s MoneySmart budget tool, which will do most of the hard work for you. Try also using a mortgage calculator to determine the monthly financial commitment you’ll be facing. 

When budgeting, leave a little wiggle room should your financial situation change or rates increase, says Michelle Hutchison, spokesperson for RateCity.

“Allow for a buffer of at least 2 percentage points higher than current rates – that is worth approximately an extra $400 per month for a $300,000 home loan,” she said.

“Even though the Reserve Bank dropped the cash rate last year it’s inevitable that interest rates will eventually rise, and borrowers should plan ahead to avoid financial difficulty,” she said.

Second, do your homework before it comes time to apply for a loan. There are hundreds of mortgage options available in the market so it pays to compare home loans before you decide on one. While the interest rate will be significant when it comes to pricing, it’s also important to compare fees and the various home loan features. For instance, do you require an offset facility – a kind of transaction account which can help to reduce the amount of interest paid on a home loan? If you’re planning to build or renovate, then a construction facility may be necessary.    

“There’s a lot of money to be saved using a site like RateCity and comparing your home loan to what’s on the market so use this time to shop around,” said Hutchison.

Finally, don’t rush in to the market on a whim – such as you’ve found your dream home before you’ve got a significant deposit saved.

“Our research shows that it takes the average first home buyer more than five years to save a 10 percent deposit if they are earning the national average wage of $70,000,” she said.  

“There are huge financial benefits to saving longer and harder before taking on a home loan – in the long run it could save you tens of thousands of dollars, but ultimately you’re more likely to be in a better position to service the loan from day one.”

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