Home Ownership More Affordable – Believe It Or Not

Maybe home ownership is more affordable than some suggest.

A new report has revealed home ownership in Australia has become more affordable since 2011, while renting has become more expensive.

It’s a good reason for young people to consider buying a home rather than renting to boost their wealth, according to Amanda Watt, the head of banking business act..

Home owners with a mortgage paid an average of $453 per week on housing costs in 2013-14.

In real terms, this is largely unchanged from 2011–12, according to the Australian Bureau Statistics’s  (ABS) Housing Occupancy and Costs 2013-14 report released last week.

More affordable to buy than rent

Combined with rising incomes, the report reveals that in real terms, or after inflation, housing has become more affordable to buy.

The ABS said that an increase in average household incomes has seen owners with a mortgage spending 16% of their income on housing costs in 2013-14, down from 18% in 2011-12.

So, with housing costs for owners with a mortgage remaining steady and weekly incomes rising, mortgages, on average, became more affordable in 2013-14, the ABS said.

In contrast, the official report reveals that households renting from private landlords paid an average of $376 per week in 2013-14, a rise of $12 from the 2011–12 average in real terms.

Lower income households* renting from a private landlord paid on average $313 per week, which represented 34% of their gross weekly income.

In comparison, lower income households with a mortgage paid $326 a week on average, or 27% of their gross weekly income, on housing costs.

act.’s Amanda Watt said that with interest rates at historically low levels, this has helped to make home ownership and the servicing of home loans more affordable, combined with an increase in income levels.

In addition, ongoing low unemployment would support young home buyers taking out a mortgage.

But home buyers needed a strategy in place to position themselves for a purchase.

“What can first home buyers do to get into the property market?
Save a bigger deposit. Time is money, so the more you borrow, the more you will repay in interest.bank deposit savings save money
If you are saving for your first home, start making the sacrifices now and save as much as you can before you buy.
Claim the first home owner’s grant and any other subsidies your state government offers.

“Once you get a loan, use an offset account. Offset accounts are a great way to cut interest costs.
Offset accounts link your home loan to a savings or transaction account.
The balance in the savings account is then used to offset the home loan balance, reducing interest costs.
There are tax benefits also as tax isn’t paid on the interest credited to your savings account because the interest is not actually being earned as it offsets the home loan interest,” Watt said.

Outright home ownership is falling

Despite the increase in home affordability, the report reveals that since 1994-95, the proportion of households that own their home outright has declined to 31% from 42%.

The proportion of households with a mortgage has increased from 30 to 36% and the proportion of households renting privately has increased from 18 to 26% between 1994-95 and 2013-14.

* According to the ABS, a lower income group is formed comprising the 38% of people with equivalised disposable household income between the 3rd and 40th percentile.
This group is referred to as Lower Income Households.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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