Looks like we’ll have a 2-tiered property market – those who can and those who can’t


It seems as though there are always stories about the challenges of housing affordability in the media.

NewsAnd this seems to be dividing us into a nation of those who are property owners and those who believe property will always be unaffordable.

During booming market conditions it was all about being priced out of the market by greedy property investors and foreign buyers.

Then when the market slowed, the conversation turned to negative gearing and how it was keeping the rich richer, and stopping others from stepping onto the property ladder.

Now that our housing markets have slowed during COVID, we still hear the trials and tribulations of first homebuyers who are struggling to save a deposit.

So what’s the real story about property in Australia?

I keep hearing cries that the Baby Boomers had it easy when they were looking for a home, but that’s not really the case.

Bank lending criteria were just as strict back them and interest rates were usually in double digits, even reaching 17% in 1989.

retire-baby-boomer-leisure-exercise-sun-bike-beach-elderly-old-coupleAnd Baby Boomers could rarely rely on the bank of Mum and Dad as their parents lived a frugal life, with many of them having learned their money habits during the depression.

This meant Baby Boomers had to learn the art of delayed gratification realising that ‘once it’s gone there’s no more.’

But society has changed, and the younger generations are living in a much faster world and have different expectations.

Evidence points toward their inability to delay gratification, sacrifice lifestyle and save.

They’ve grown up in a world where instant coffee isn’t fast enough and email now looks like snail mail.

They want it now, meaning that many have not learned to save because their addiction to credit simply won’t allow them to.

And when it comes to housing, many first home buyers want the type of home located in a lifestyle inner suburb of one of our capital cities that it took their parents 30-40 years to afford.

But despite all this, the proportion of First Home Buyers (FHBs) in the market at present is higher than it has been for a long time with over 20% of new home loans being taken out buy first timers.

These FHBs realise their first home won’t be their final home and many see it as a stepping stone to a bigger family home and building a portfolio of investment properties in the future.

Having said that …there will always be a two-tiered property market in Australia.

On the one hand will be those who have the ability to buy properties and enjoy the benefits and wealth creation that comes with home ownership, and those who feel they are locked out of the housing market.

But it doesn’t really have to be that way, so I’m going to run through some of the biggest “blockers” to property ownership in Australia today.

Access to finance

In the new finance environment difficulty getting finance is a growing issue for both home buyers and property investors looking to grow a portfolio

These days, it is harder:

  • for beginners to get a loan, with banks enforcing stricter lending criteria
  • for established investors to grow a substantial portfolio, because of tighter loan serviceability criteria
  • to live off the equity in your properties when you retire, as you’ll need a much bigger asset base and much lower loan to value ratios
  • to manage your investments year to year, as rental yields are lower than they have been in the past

Does this mean getting on the property ladder is no longer an attractive proposition?

Far from it!

Property Portfolio RisksOwning your own home has always been aspirational. It’s hard, but the achievement is worth it.

And building a portfolio of investment properties to give you security in your golden years is more important than ever today considering we can’t count on the ability of a government lumbered with more debt to look after us.

So what is that first step?

Getting a deposit together

In Australia we have property prices that are considered to be among the highest in the developed world, with residents in our biggest cities forking out more than $1 million for modest family homes.

With lenders requiring a 20% for a property deposit (to avoid extra charges such as lenders mortgage insurance), this means some buyers need to save $200,000 to buy their first home.

Or do they?

First HomeFirst of all, higher loan-to-value ratio products are available.

You may need to pay for lenders mortgage insurance (LMI) -which protects the bank, not you the homeowner – but by paying for this premium, you may be able to buy a property with a 10% deposit, or sometimes even a 5% deposit.

First homebuyers can also access the government’s First Home Loan Deposit Scheme, which allows you to buy a home with a 5% deposit, without having to pay LMI.

And recently the NSW government has given stamp duty exemptions for first home buyers purchasing a property up to $800,000 making the initial hurdle a little easier to jump.

Then there’s always the Bank of Mum and Dad – many first home buyers get a leg up form their parents.

Educating yourself about how finance works

Saving the deposit is the first hurdle to overcome.

The next hoop to jump through is serviceability – something that has become a little trickier in the wake of the Hayne’s Royal Commission into banking.

Business LearnFor property buyers, proving they can afford to repay a loan depends on two things – their actual budget, consisting of income versus expenses, and the standardised figures lenders use to calculate typical living costs, the HEM and HPI.

This is where other debts and liabilities come into the picture.

Lenders consider all of your available credit limits as debt, so if a borrower has a $10,000 credit card with a zero balance, it’s still considered as a $10,000 debt.

HECS and HELP loans will be factored in, as is your superannuation balance.

Borrowers can get head start here by cancelling credit cards (or at the very least, reducing the limits on them), paying out personal loans and car finance, and keeping a clean transaction record that doesn’t show too many non-essential purchases in the three to six months prior to applying for a loan.

In contrast, accomplished investors with a successful portfolio may be able to draw on existing equity or use their rental income to show serviceability.

As the saying goes, buying your first property is much harder than buying your second, fifth or eighteenth.

It’s the “getting started” part that is often the hardest – but once you clear this hurdle, the sky is the limit.

What is your end goal?

Interestingly, although the first property is where most people place all of their focus, the best place to start is actually with your “end goal” in mind.

Most property investors I speak to have a vague goal to build long-term wealth.

GoalBut what does that really mean for you?

Do you want an asset base that will grow steadily and can be sold so you can live off the growth in value if need be?

Are you planning to live off the rent from 10 properties in retirement?

Do you want to create and leave a legacy to your kids – or if you’re really successful, retire early and lay on the beach watching your profits roll in?

Deciding your goal upfront can help you plan the steps you need to take to reach your goal.

And the reality is, anyone can do this.

I know this for a fact – because I have coached and mentored thousands of everyday Australians, and I’ve helped them step from the “I’ll never be able to afford it” camp into the “growing my wealth through property investing” pile.

So, where to next?

If you’re a hopeful property buyer reading this blog, and you feel like I’ve cemented some of your fears about ever getting into the property market, please don’t be discouraged.

StrategyThere are a number of strategies you can use to get ahead in property and your first purchase doesn’t need to be your “forever home” – in fact, it’s better if it’s not.

You could buy an apartment rather than a house, or purchase in conjunction with someone else to get on the property ladder sooner, or “rentvest”  – rent where you want to live and buy where you can afford to – with a plan to cash in on the capital growth for your own home deposit down the track.

There are always options out there; some just involve thinking a little outside the box.

There’s an old saying – the best time to invest is 20 years ago, the second-best time is today.

There’s no doubting that buying your first home or investment property in 2020 is hard, far harder than it may have been for the generations who came before you.

But it’s not impossible.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Flat Design Illustration Concept Of Team Work

If you’re wondering what will happen to property in 2020–2021 you are not alone.

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In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now!  This will give you direction, results and more certainty. Click here to learn more
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'Looks like we’ll have a 2-tiered property market – those who can and those who can’t' have 25 comments

    Avatar for Michael Yardney

    September 22, 2020 John Beattie

    Thanks Michael,
    My new book is out next year. I call it “Ramblings of an Aged Property Investor.”
    To sum up my previous post. Things are always hard and will always change but you have to persevere and keep looking for ways to succeed. You have 2 options in life “fail or succeed” you choose your path and how far you want to go down that path but keep trying. Use whatever tools are available to you at the time and learn as much as you can. One of my memories on a really bad day was seeing a saying. “Nothing can stand before he he who perseveres.” I credit that in no small way to helping me get where I am today.


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    September 22, 2020 Ben

    The facts are that there is a lot of property out there and its ALL going to be inherited by someone, the Government or a charity. I also think the “instant gratification” generations (basically everyone nowadays) is a passing fad; I suspect the pandemic is teaching these people that such thinking is just making most people poor and the rich richer. Owning property can be so much more than just “impressing the neighbours” (ie just looking rich, with no original art works on the walls, and no mud on the underside of the car.). Property ownership, in contrast with the form of materialism as exemplified by the “Block”, can also be a management training ground, a path to self expression via design, and a potential self owned business that gives a profound sense of freedom and creativity, and of belonging. It was definitely worth it to give up some of my self gratification in my youth. The first step, however, is not getting a big head. The first step is to put your ego in your back pocket and educate yourself, and its a very steep learning curve that will probably take the rest of your life. It’s going to be the ride of your life…if you are serious.


    Avatar for Michael Yardney

    September 22, 2020 John

    Wow, where do I begin !!
    Let me first apologize for not being the most articulate or educated of people out there.
    However I thought I would have a go at this as I feel I have a slightly different view to everyone.
    I am a baby boomer with multiple investment properties. I started investing 20 years ago and lived through the last recession we had to have almost losing my home due to a business investment at the time. I’ve seen my fare share of hard times in my life like most others as well. One of my first jobs was with the Housing Commission of Vic as it was then known and they used to plan and develop public housing estates on a large scale. Now like then we have in our communities a large number of migrants and people who struggle with life in it’s many forms and are unable through lack of education, opportunities, desire or motivation to get ahead. Not anymore. Over the past 30 years I’ve seen a great many changes and these keep coming faster than at times we can adapt to. A few examples would be immigration, infrastructure and technology. We have seen huge changes in job types and industries, many that have disappeared and many that are new to many of us born in the baby boomer age. In relation to property today and how we got here. There has been a marked shift in what governments do now compared with 40 years ago when I worked at HCV. Clearly our Vic Govt has vastly reduced the number of homes and apartments in now builds and we have ever expanding housing waiting lists for a growing number of people who just can’t make ends meet for one reason or another. We therefore rely now more on the private rental markets to accommodate ever more people in this income range. Demand and supply- more demand and more migrants means more supply of a finite product. This has helped cause some of our property booms driving prices up and making it harder for the next FHB and rental market. When we bought our first home the FHB grant was $1,250. We can all see where that’s gone from there to today. From my own experience and a jobs / incomes point of view. Changes to job types as mentioned before and industry compounded by technology and downsizing have seen many of us do more work with more responsibility for the same pay, while there has been a large flattening of the company ladder structure. I’ve worked with many people who have degrees but cannot get into their chosen professions due to lack of opportunities. The result is large numbers of people on lower income jobs as many good jobs and industries have also gone overseas. Yes there are new industries and opportunities but I feel in relation to the number of people coming out of Uni there is less scope.
    So where do we lay the blame for all this change and lack of. Sorry I don’t have the all important answers we all want. My last long term job was with another Govt Institution though and I think typifies how are Govts are reacting to all this change. The main computer system I worked on was created in the days of DOS for those who are computer literate. Every few years the govt changed rules and regulations which meant new code and programs had to be created to account for these changes. Instead of a new operating system they just bolted on these new programs to the existing mainframe program. This over time led to many debacles as the new and old did not speak to one another and some areas were denied access and eventually didn’t even no of the existence of these older programs which were still in use and visa versa. Like many things today it was always put in the too hard basket or there wasn’t the budget for change. I think basically that Govt’s have been shirking their duty and causing unintentionally a lot of current day problems whether it be housing, creating new industries and jobs or currently in the news Aged Care and the list goes on. We wont see any improvements till someone is willing to tackle the issues head on.
    Personally I know from my working life and the experience mentioned above but also to do with investment and finance that things are getting tougher all the time. All we can do is pull whatever levers are available to us or our children to achieve the best outcomes for our time. For those who are more adept it means learning another skill and that is to educate yourself on these levers or find someone who knows and can help you.
    Michael, I think people clearly want more than a few statistics and generalities about what is currently happening. And NO you cannot explain all of this in a small article such as this and some of your points of getting educated are relevant. Many baby boomers have acknowledged that even with children who have attended university and have good prospects that they need a helping hand. If a $500k property is going up by even 5% per annum on avg then with current stagnation of wages even someone on $100k per year cannot meet growing housing affordability. Maybe the market will deal with this, maybe the Govt??? but in simple terms saying to someone that you can find a way when they are at their wits end does not encourage. I know you care deeply about people really Michael or you wouldn’t still be working however as some say the Facts speak for themselves. Maybe provide an example of how someone can get into the market with some realistic situations and people will be more accepting of your views.


    September 22, 2020 Michael Yardney

    Thanks for the kind words Rob


    Avatar for Michael Yardney

    September 21, 2020 Faizan

    Very good article Michael.
    I think the best scenario for the first home buyers will be:
    1) Access to the 5% first home loan deposit scheme to avoid LMI
    2) This means that you can only buy under $700K. And with less ( or no) stamp duty to pay ….best bet will be to invest into the building a house on a registered land. This way the owner gets that 25K Home Builder Grant.


    Avatar for Michael Yardney

    September 20, 2020 Michelle Hacking

    I’ve been around long enough to have experienced both generations (still kicking myself for not investing in a 2 acre property In Carlingford in 1990 for $82,000 with our $550 p/w at the advice of my parents), and though I am a home owner, and I can identify with the whole “starting out rough” scenario, I’m still struggling to even sit on the fence on this one. I have 3 adult kids who have their struggles cut out for them, and solely because of todays costly property market (rent inclusive), I cannot see a way forward for them down the home ownership path without some lucky opportunity falling from the sky. I feel the data is more of a blanket figure rather than an adequate analyses of the technicalities that come together to create that figure. I believe the growing number of these first home buyers you quote can be attributed to a growing number of working couples that have immigrated to Australia to do just that with the financial backing of their parents. The rest of the figure is made up of “the lucky ones” who have either been opportune enough to go to uni and forge a career; lucky in their work growth opportunities, or opportunities in general; part of a working couple, or have come into some money. I don’t deny they make sacrifices, work hard and make smart choices to achieve their home-owner status, but I fail to see how an individual on $550p/w Net Paying $350 p/w rent, $120 travel expenses to/from work, food, electricity, phone etc with a broken washing machine and fritzy phone… can save a dime let alone even a fifty grand deposit. This is not something that just “anyone” can do without family help, an inheritance, a compensation or payout of some sort, or having built a career. The people I know who own their homes all fall in to those categories. But there are so many more people out their struggling to just make ends meet and pay their rent that are “stuck” where they are with their broken phones and boring weekends. It is really quite out of touch to say that “anyone” can do this. A comment like that not only serves to discount and invalidate the millions of people who struggle day to day -it’s a kick in the teeth. Probably best not humiliate millions of people Micheal lol; maybe a better choice of words. That’s not to say that everyone in that situation needs to be. Many could get themselves out of it with sacrifice, hard work and a bit of ingenuity; but definitely not just “anyone”. You can’t just pretend the little people don’t exist because they shine a glaring light on the harsh truth. If you can show me how I can help my kids get into their own homes, I’m all ears.


      September 20, 2020 Michael Yardney

      No doubt it is hard to 1st homebuyers, but it always has been. And you are right it will be very difficult for someone only earning $550 a week, especially if you’re talking about Sydney.
      However however the number of first homebuyers in the market at present is the highest percentage it’s been years and years. The federal government and the state governments of many incentives to try and help young families get into property.
      But the first step is to get money management right. Just to make things clear… I’m not trying to humiliate millions of people what I’m trying to do is inspire millions of people, you say the only way you’ll ever get in the property market is with luck or to win the lottery. I’m saying there are opportunities if you’re prepared to work for it – inspiration not desperation.


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    August 25, 2020 Dan

    Yep. I stopped reading when he spoke about how hard boomers had it with double digit interest rates, but ignores the fact that basic homes weren’t $500000+ back then, or only several times their income instead of 10+. Vested interests so that obvious in this article.


      August 25, 2020 Michael Yardney

      Sorry I disappointed you Dan. I do have a vested interest.
      I have six children in my blended family and 10 grandchildren. Lots of young people that I want to get into the property market so they can own their own homes in due course.
      So we areon the same side. However the facts are the facts – even if you don’t like them.


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        August 30, 2020 Jeremy

        “The facts are the facts” – indeed they are. And they are that unless your 10 grandchildren get a massive handout from their family then they’re unlikely to ever be able to own a home. That’s the outcome from the out of control property market you champion and defend.


          August 30, 2020 Michael Yardney

          I home they are being taught to get a good education, geta. Job, learn money management and delayed gratification so you can save a deposit. That’s what those tens of thousands of young Australians who bought their first home over the last few months have done.
          Yes it’s expensive and it’s not easy – but nothing that is worthwhile comes easy


            Avatar for Michael Yardney

            August 30, 2020 Jeremy

            I call bullshit. The “delayed gratification” thing is a miserable sledge, as if it’s wasteful spendthriftness that’s locking young people out of housing. Doesn’t matter how good their education, job, money management or ability to “delay gratification” – it’s no longer possible to save up the deposit on a house whilst paying current rents and on a current salary. Go on, give me some [non-identifiable] case studies of where someone’s managed it. I bet you can’t. It’s the reason why all the “hey this young person bought a house, you can too” puff stories in the flim-flam media always turn out to be based on someone who had free accommodation and a giant gift from their parents.

            August 31, 2020 Michael Yardney

            You don’t have to believe me – demand from first home buyers is surging = just read this article here

        Avatar for Michael Yardney

        September 22, 2020 Ben

        Dan’s reply is partially correct but misses 2 key points: 1. House sizes “back then” were half what they are today in Sydney, and 2. People earning $55K/annum can EASILY afford a house in regional Australia (like ALL of Adelaide or Hobart), especially if they have a business where they work from home and rack up all the costs against their business. And whilst most Siddysiders don’t know much about Adelaide, it IS a favourite stop over for Sajeev Gupta and Elon Musk. Come on over and find out why.


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      August 30, 2020 Jeremy

      Exactly – who’s better off, someone who buys when prices are low and interest rates are at a peak – or someone who buys when interest rates are at their lowest and prices are inflated? Because high interest rates go DOWN; low interest rates go UP.


    Avatar for Michael Yardney

    August 24, 2020 Jeremy

    Nonsense “analysis”. All boils down to “you’d better have access to the Bank of Mum and Dad” anyway. Imagine just assuming that. Without that, who’s entering the property market? And you’re ignoring that it’s not just obscenely high property prices compared with wages, it’s also obscenely high rents, even with the current minor slowdown. Add obnoxious HECS debts, low.wages growth, and it is prohibitive to save one of these ridiculously high deposits. Your slagging off younger people as greedy spendthrifts is garbage – they do have to pay more than previous generations, but not for luxuries – for a bloody roof over their heads. They’re not greedily demanding an inner-city forever home first – they’re being locked out even of inaccessible, remote homes with poor access to necessary services like schools and hospitals.

    Stop giving boomers nonsense excuses for not caring about the hideous state of housing affordability in this country.

    Who do you know who’s bought a first house in the last three years without the help of mum and dad – a loan, security for a loan, free accommodation while saving etc. Anyone? How? Imagine thinking a housing market where access depends on who your parents are.


      August 24, 2020 Michael Yardney

      All I know is that 20% of home loans over the last few months have been to 1st home buyers, a higher percentage than over a long long time, and they’re more first homebuyers in the market currently in they have been for many years.
      Sure it’s hard to FHB’s and that’s part of the cost of living in one of the best capital cities in the world, but I wouldn’t want to live anywhere else- would you? there are a lot of places you could go and live with the price of Real Estate is much cheaper – but would you really want to live there?


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        August 30, 2020 Jeremy

        I note you ducked the question. “Who do you know who’s bought a first house in the last three years without the help of mum and dad – a loan, security for a loan, free accommodation while saving etc. Anyone? How?”

        You’re the one advising people on the property market. If you can’t name anyone, then who could?

        I’m not sure what your point about capital cities is meant to be – on the one hand you criticise young people for wanting to live where jobs and services are, on the other you say why would you live anywhere else. A bit all over the place, mate.

        Anyway the point is cities need young people to be able to actually have housing security, and that’s not available any more in this broken market. And also young people ARE fleeing to the country because it’s not as expensive (although still stupidly expensive) – putting more strain on limited services and jobs.


          August 30, 2020 Michael Yardney

          You don’t really expect me to give out names here do you?
          What I can tell you is that 20% of all home loans are currently going to first home buyers – they are out in bigger numbers than they have been for years getting into the property market and buying homes.
          Is it difficult – of course it is – it always has been – home ownership is aspirational – that’s what makes it so special.
          This is not a communist country where everyone gets a home in a high rise public housing tower


            Avatar for Michael Yardney

            August 30, 2020 Jeremy

            It wasn’t a “communist country” before Howard and the Libs broke the housing market, either. There’s a big gap between “communism” and an unhinged speculative investor-fueled housing market.

            I don’t want names, but I’d be curious whether you can honestly describe [in non-identifying terms] ANY situations you’re aware of where someone has bought their first home without significant external help. Where someone has been on even an above-average income and saved a deposit for an actual house to live in whilst paying rent. Even an apartment which doesn’t even come with any land.

            August 30, 2020 Michael Yardney

            Jeremy – every month our buyers agency at Metropole helps first home buyers get into their first home, and that’s not our core business which is investment, but I’ve seen it with my own eyes, week after week, month after month. Young couples who spend less than they earn, save a deposit, often get a boost from a government grant and buy their first home.
            I hear your frustration – clearly you can get into the property market, but each week hundreds and hundreds of young Australians but their first home – I hear that it’s not happening in your world, but it’s NOT propoganda or made up

          Avatar for Michael Yardney

          September 22, 2020 Ben

          About 3 years ago a few unemployed people, on the DOLE, bought their first houses in the Eyre Development in SA. Admittedly the house was small and cheap (about $220K), and sadly they then had a wild party and half wrecked the place, and Jennings subsequently didn’t repeat that house and land package idea. But I hope you get my point- it IS possible.


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