Increasing property prices and poor affordability continue to push many buyers out of the property market – which is especially the case for first time buyers.
In my opinion, it is harder to become a home owner today than what it was back when I bought my first home around 30 years ago.
As a passionate advocate for first home buyers, I have put together 10 key strategies to consider in order to help aspiring buyers achieve the goal of owning their own home.
In Part 1, we looked at the following strategies:
- Education, education, education
- Seek advice
- Learn to budget
- Start saving early
- Be prepared to make sacrifices
Here are the remaining 5 strategies to consider in order to help aspiring buyers achieve the goal of owning their own home.
6. Don’t borrow more than you can afford
A trap every young buyer must avoid is borrowing more than they can really afford.
This can happen when you are tempted to take on a bigger home loan so you can buy that bigger or better property – where you are sometimes tempted by glossy brochures and slick sales techniques.
To help ensure this doesn’t happen, you need to set a budget and stick to it, focusing on the properties in the areas you can afford rather than spending time looking at properties outside of your price range.
The ultimate objective of staying within your budget is to avoid becoming a slave to your mortgage, which can lead to financial and emotional problems, not to mention reducing the satisfaction and enjoyment you might otherwise get from being a home owner.
7. Plan to trade up
We all want the ideal home – something we’re proud of that ticks all the boxes when it comes to things like location, features, aspect, size, number of bedrooms, garden and proximity to amenities and public transport – and the list goes on.
Although there’s nothing wrong with aiming high, when it comes to buying your first home being realistic is more important than getting everything you want first go.
The reality is, the ideal home probably doesn’t exist – or, if it does, it is likely to be way out of your price range.
This is where the application of the principles of wants and needs plays an important role in helping you select the type and location of properties to aim for, especially when affordability is factored in to the equation.
A challenge you may face is aiming for a home that is as good as your parents or the one you’re currently renting, or you may be seduced by slick sales techniques into thinking your need something bigger and better than you really do.
In these circumstances, it is important to remember that most of us (myself included) made sacrifices when buying our first home.
Once you are on the property ladder, it can be easier to trade up as family finances permit and when changes in personal needs and preferences (like starting a family) signal it’s time to move.
8. Buy with your head
Buying your first property is a big deal, full of excitement and emotion.
And therein lies a potential trap if you buy with your heart and not your head.
The risk is, you may focus more on how a property makes you feel rather than, for instance, whether it meets your practical needs and of course whether it is affordable.
As a result, your judgement may become clouded and this could lead to problems like spending more than you can afford, buying the wrong property or ignoring defects that could cost you thousands to repair.
So it’s important to be as objective as possible when choosing a property and this extends to the buying process as well.
For instance, you (like everyone else) need to avoid getting caught up in the emotion of the auction process where it’s the job of the auctioneer to engage with bidders to encourage them to bid more.
Therefore, the key learning point here is to check your emotions at the door.
9. Start with an investment property
The challenges associated with saving a deposit and ongoing home loan affordability can be a hurdle too high for many aspiring young buyers.
As discussed in my previous article – How First Home Buyers Can Get into the Property Market – buying an investment property, as strange as it may sound, can help overcome these obstacles in three key ways:
- By generating rent: This can be used to pay off your investment loan. Then, once finances permit, you could move into the investment property and call it home.
- By generating capital growth: This could be realised through the sale of the investment property and the proceeds used as a deposit.
- By generating equity: This could be used as additional security for your home loan. This equity may also help reduce the need for expensive Lenders Mortgage Insurance.
10. Walk away
As disappointing as it may be, it may be a better option to walk away from buying a property than committing to buy and discover that it’s really not what you wanted or that you’ve over-committed financially.
With rising property prices, it’s understandable that you may want to buy now rather than face a potentially higher purchase price in a year or so, and/or higher home loan costs if interest rates increase.
But these are not the sole basis on making your decision to buy.
Sure, these considerations are important, but acting in haste or without careful reflection can lead to regret and personal and financial problems down the track.
One of the big benefits of patience and discipline is that our young buyer can live to fight another day.
You may also want to read: 10 STRATEGIES TO HELP FIRST HOME BUYERS – PART 1