From high property prices to restricted borrowing capacity and even sky-high rent costs, it’s harder than ever for first-home buyers to break into the property market.
The Reserve Bank’s 13 interest rate hikes, sluggish wage growth, and higher deposits are just some of the many factors that have put many buyers on the back foot.
But instead of giving up on the great Australian dream of owning their own home, they’re turning to some alternative strategies to make their dream a reality.
1. Looking at different locations
From emerging neighbourhoods with potential for growth to suburbs that offer unique features, first-home buyers are looking to overcome the affordability hurdle by looking elsewhere.
While many buyers might have their sights set on buying their first property close to a capital city centre, it might be more realistic to look at an alternative suburb.
In Sydney’s sought-after inner west, for example, Marrickville, the median house price is just shy of $2 million…. Which is far out of reach for most first-home buyers.
But towards the south of the city, in Kogarah, houses are available for a $1.6 million median.
And even further south in Wollongong, houses come in at a $1.16 median.
Looking at alternative but investment-grade suburbs is a popular way for first-home buyers to enter the property market in a more affordable way.
2. Rentvesting
More new homeowners are rejecting yesterday’s sentiment of owning their own castle and instead buying investment properties before their own home.
Dwelling values in several markets are rapidly outpacing wage growth, which means every year you spend saving for a deposit, the market is moving further out of reach.
Essentially, the rent and investment strategy is to buy an investment property first (where you can afford to buy) and rent where you want to live (but probably can't afford to).
It’s a tactic that overcomes financial obstacles and exorbitant property prices because you can buy in a location that fits your budget and then rent in a location that suits your lifestyle.
It works because even though you’re renting, the property you buy is an asset that’s growing in value (assuming you choose a smart location) and being (in part) paid off by your tenant.
Not only that, but you’re gaining equity that can launch you into other property purchases down the track, including (when the time is right) a home to call your own.
3. Buying together
Buying with friends, a partner, your parents (or anyone else you can convince) is an effective, and popular way to share the load and half the cost of buying your first property.
The key factor to consider here is to ensure that you understand the legal implications of co-buying and draw up a co-ownership agreement about how the ownership structure will work.
Joint tenancy is one option - this means you both own the entire property together and in the event of one purchaser's incapacitation the other will receive full ownership of the property.
Tenants in common is another option - where you’ll both own an agreed portion of the property, meaning that a buyer can be easily bought out if they decide to leave.
4. Government support
Both federal and state governments have implemented a whole suite of schemes, incentives, and fee waivers which eligible Aussies are taking advantage of to realise their home-ownership dream faster.
First-home buyers have the following available to help them onto the property ladder sooner:
- First home guarantee (FHBG) scheme to help first-home buyers buy a new or existing eligible property with a deposit as low as 5% while avoiding lenders' mortgage insurance (LMI).
- The Help-to-Buy Scheme is where the government stumps up part of the purchase price.
- The First Home Super Scheme which allows buyers to use some voluntary contributions from your superannuation as your deposit - rather than having to save that amount in a bank account.
- The First Home Owner Grant gives first-home buyers assistance in buying a home by offsetting GST.
- Stamp duty waiver is available in some states. For example, the NSW government has abolished stamp duty on properties valued under $800,000 and has reduced, on a sliding scale, stamp duty incurred on properties with a sale price up to $1 million.
