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Stepping onto the property ladder – difficult but do-able

We’ve all heard how tough things are for younger generations when it comes to today’s housing market and the continuing issue of affordability. Endless media reports suggesting Australian real estate is significantly overpriced, combined with an uncertain interest rate environment, have understandably left many would be home buyers feeling dejected about their chances of ever getting their foot on the first rung of the property ladder.

But is it all really as dire as it seems, or is the Great Australian Dream still very much alive and attainable? 

While experts report that the national median house price across our major capitals is still a whopping $600,000, some suggest this is not as bad as it was back in 2008, when interest rates peaked at a hefty 9.5%.

Rather than despairing at the state of the market, maybe it comes down to young buyers adjusting their expectations. Sure, you might love the idea of buying a house in the suburb you’ve been renting in for years, or where you lived with mum and dad, but is this realistic? And if not, what are the best options that suit your budget?

Here are some tips as to how you can climb onto the property ladder and even aspire to hit the top rung one day…

Downsize your ideals

There’s a saying that goes, some property is good, lots of property is best but no property is bad. Instead of staying on the rental roundabout and thinking you’ll never be able to get into the property market, now is the perfect time to seize the opportunities that exist within your price range and consider doing what might be a dirty word to some – compromise.

Okay, so the recorded median house prices seem a bit scary for most home buyers starting out, but not all properties are going to fetch that much money, particularly in today’s flatlining market.

You may not have sufficient funds to buy the home of your dreams, but it’s getting your foot in the door that counts. Perhaps you could move a little bit out of your comfort zone and buy a few suburbs over from your ideal location, or consider a smaller property such as a townhouse or apartment.

We are currently experiencing the quintessential buyer’s market, as values have either stagnated or gone down in many instances. And once you are finally in your first home you can sit tight, wait for values to start rising again (as they always do) and after a while, use your growing equity to take the next step on the property ladder into something bigger and better. Remember – from little things, big things grow!

Location is key
Having suggested the idea of compromise for those wanting to get onto the property ladder, I’m now going to make a statement that might seem like a contradiction. Never go for size over suburb. What do I mean by this?

Well, whilst there are many things you should be prepared to forego in order to buy your first home, including a shiny new kitchen and bathroom or the latest home theatre system, buying in a cheaper suburb just so you can have some extra luxuries or mod cons is not advisable.

You see, it’s relatively easy to make a few changes to improve an older style home, but it’s not so easy to make an entire tired suburb look more appealing to potential buyers. Essentially, it’s all about location and although most people don’t see their first home purchase as an investment, it ultimately is.

Wouldn’t you rather have a property that will grow steadily in value over the years rather than lose you money? Just think how hard you worked to get there in the first place!

Take the first step
Although your first home purchase is based more on emotion than financial logic, you should still consider the house you buy to be an investment for the future. This is the biggest acquisition you’re likely to have made, so ensuring you end up with an appreciating asset that you can leverage off to generate more income (or your dream home) down the track is the best approach.

Save, save, save!
With most experts expecting the current hiatus in house prices we’rewitnessing to last for at least another 12 to 18 months, now is the perfect time to get organised with a budget and start saving for a healthy deposit while you have a bit of breathing space. Prices are likely to remain weak for some time yet and therefore, you don’t risk missing out by taking a bit of time and getting all of your financial ducks in a neat little row.

Ideally, you’ll be able to come up with a 20% deposit, plus 5% to 10% extra for purchasing costs. However if this is too much of stretch on top of your everyday expenses, try aiming for at least 10% as there’s always the option of getting mortgage insurance.

At the end of the day, the most important consideration is whether you will be able to afford your mortgage repayments each month. Never over-commit financially and if this means waiting a little longer, then so be it.

Ask mum and dad for help
More and more parents are helping their kids get onto the property ladder these days, as it becomes increasingly difficult for them to get there without some sort of cash injection. Whether it be as a joint investment type arrangement or your parents will agree to go guarantor for the mortgage, asking mum and dad to lend a hand could be a good option.

If they can manage to donate enough to your cause to ensure you have a 20% deposit, you can even avoid the cost of mortgage insurance and with their backing, lenders are more likely to look favorably on your application.

Do you really need your own home?

As much as I would advise anyone currently renting to make the leap onto the property ladder – particularly at the moment when we’re in a buyer’s market – I would qualify this suggestion by saying that you don’t have to be a home owner to own property.

Remaining a tenant and purchasing an investment property is a great option for those just starting out. There are numerous benefits to this including;

  • You can continue to rent in your ideal location that you may not be able to afford to buy into just yet.
  • You can use your investment property as a steeping stone to get into the home of your dreams and avoid having to compromise on location down the track.
  • Your tenant will help to pay the mortgage and take some of the repayment burden off your shoulders.
  • The interest payable on your mortgage as well as expenses like rates and maintenance are tax deductions for investment, whereas this does not apply to your own home.
  • You are starting a portfolio that will enable you to generate long term wealth and perhaps retire early one day!

Regardless of how you choose to get there, climbing onto the property ladder is a fantastic way to secure your financial future and I would advise anyone to make the leap as soon as they can. Because if you get it right, the only way is up!



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again 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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