Australians aspire to own their own home. How do you make it happen?
THE short answer is: with great difficulty. In June, Canstar. com. au crunched the numbers on home loan affordability. Even at our historically low home loan rates, an averagepriced house takes 22 per cent of after- tax income for a Victorian couple who are both on average salaries. In Queensland it takes 20 per cent of the combined after- tax income and in NSW it’s 24 per cent. Heaven forbid if one of those two people should lose their job, want to take time out for study, or take any unpaid maternity or paternity leave.
So if you do want to own your own place in a good location, the best advice I can give is to study hard, choose a career you love and work really, really hard to excel at it. Because in the absence of any government appetite to limit the unfair influence of investor power in the housing market, you truly will need, as the Treasurer baldly stated, a really good job.
Once you have managed to buy a home, of course, you don’t really own it – the bank does. So it makes sense to get your home loan paid off as quickly as possible.
As an example, a $ 300,000 home loan over 30 years at an interest rate of 6 per cent will cost around $ 647,000 by the time you pay it off. If you increase your repayments by, say, $ 300 per month though, that same loan would be paid off in 21 years at a total cost of $ 527,000.
The same home, owned nine years sooner, and costing $ 120,000 less. That’s a good savings strategy! “IF you’ve got a good job and it pays good money …” Joe, had to punish you for that one again. You walked into it, buddy.
The “how” you do it depends on only one thing: how badly you want it. If it’s your number- one financial priority, if you want it so bad you’d sell your mum for it.
Don’t sell your mum. But if you want it really badly, you will find a way.
There are two aspects to the challenge. The first is getting your deposit together. That’s about saving, about delayed gratification.
It’s about not spending, about conscious decisions to eat in, to not buy those new shoes/ that jacket, to buy cheaper cars, to have cheaper holidays, to take the overtime when it’s offered ( rather than going to the pub, making it a double win).
And sure, if you’d consider working harder to get that promotion, or switching to a new, more lucrative career, then that’s probably what Joe Hockey was really talking about. He just said it like a klutz.
The second challenge is wiping out that huge mortgage, so that the house is yours and not the bank’s.
That, again, is about sacrifice. Paying extra off the mortgage every month, which again means cheaper cars/ holidays/ shoes. About putting part of every future payrise into higher mortgage repayments.
Tell me I’m wrong. If you want it badly enough, you’ll make the sacrifices you need to. MOST Australians buy their property with a home loan. To get the best interest rates you should have at least 20 per cent of the purchase amount in savings – the deposit. This gives the lender comfort that you have the discipline to save, and also means you won’t need lenders mortgage insurance ( LMI).
So an important first step is to save the deposit. I advocate setting a goal and making a plan to get there. You’ll need to do a review of your outgoing expenses and be cutthroat about removing the luxury expenses.
Many regular, small contributions usually work better than a few lump sums. If you’re a couple, live on one person’s salary and save the other in a high interest online savings account. If you’re single, or the only breadwinner, get a second job and bank all of your wages.
Remember there are incidental costs of buying property – such as solicitor fees and stamp duty – just as there are first homeowner grants. Build these into your budget.
You should also become an expert in the area you want to live. Walk around the suburb, talk to real estate agents and follow the prices being paid.
In the mortgage market there’s around 1.5 per cent difference in interest rates between the same loans. Do your homework and don’t overpay, because you’ll be overpaying for a long time. The best advice is the oldest when it comes to buying property: set a goal, have a plan and show some discipline.