Make the move: tenant to homeowner

TENANTS have their best chance to escape the rental trap in four years as the nation’s property market goes “back to normal” in the second half of 2022.

But how do you go from paying someone else’s mortgage to paying your own?

Property Home Base founder and flat fee buyer’s agent Julie DeBondt-Barker said self-help was the key for firsthome buyers and divorcees leaving renting days behind.

For those not already budgeting and saving, Ms DeBondt-Barker advised listening to podcasts on the topic, reading Scott Pape’s Barefoot Investor titles or The Richest Man in Babylon.

“You don’t have to do a lot for it to start to accumulate, but if you don’t persist it will never happen,” she said.

“And, it’s joked about, but rather than go out for two $5 cups of coffee a day – put $10 into savings,” Ms DeBondtBarker said.

GET HELP FROM THE OUTSIDE

Mortgage Choice Blaxland and Penrith broker and franchise owner Rob Lees said there were three things you needed for a loan to help you out of the rental trap: surplus income, enough savings for a deposit “and then it’s character – your credit record”.

If you are spending more than you earn, the solutions are spend less or earn more – though both may be challenging for some.

But Mr Lees said “it’s not really how much you earn, even young people not on big salaries who save well will build a deposit”.

Government programs, such as the Home Guarantee, which gives first-home buyers and in some instances single parents the chance to buy a home with minimal deposits, can take years off the process.

“And there are now quite a few lenders who will look at your rental payments as proof of being able to pay a mortgage,” Mr Lees said.

The upshot being they will not demand proof of genuine savings before giving you a loan, so long as you have a deposit.

Finally, while you “can’t clean up the past”, Mr Lees said making an effort to pay your bills and avoid dishonour fees by having enough in accounts with direct debits linked to them could improve your credit score – as black marks are typically expunged after five years.

“And in the meantime you should be saving.”

THE TIME IS NOW

Mr Lees said rising interest rates were bittersweet for people looking to get out of renting.

“They will pay more for their mortgage and they will have less maximum borrowing capacity,” he said. “But it should cool the market. And the best time to buy is when there isn’t a crowd looking to buy.”

That reduced competition could give tenants their best chance to buy a home in four years, since the market’s last correction, according to Ms DeBondt-Barker.

But she warned the worst thing a renter could do once they saved a deposit was to wait for the bottom of the market.

“The number of people who have missed the boat because they waited is huge,” she said.

“Get your foot in the door, then pay off as much as you can as quick as you can so you have equity to invest or upsize with.”

She said that those worried about overpaying in a moving market should talk to a buyer’s advocate. And advised being prepared to sacrifice on size, location or both.

“You are probably not going to buy the dream home first,” Ms DeBondt-Barker said.