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Almost every day, I read commentary from self-proclaimed property experts shining a light on Australia’s dwindling number of first home buyers entering the housing market.
As I read, I find myself increasingly frustrated. Frustrated by the lack of informed solutions to this very serious problem. And frustrated by an eagerness to lay blame on the very people most directly affected by that problem: the first home buyers themselves.
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Some property journalists have even gone so far as labelling first home buyers ‘selfish’. ‘Selfish’ for wanting a home in a suburb they actually want to live in — and ‘selfish’ for holding back until they can get it.
To be clear, I’m not suggesting that holding back in the hope that the market will soon correct itself is the answer. Academics have been predicting a housing price fall since 2008 when in reality, Australia has seen consistent year on year growth. And if this momentum continues, hopeful first home buyers are in for a long, futile wait — one that could exclude them from the property market permanently.
So if waiting in vain is not the answer, what is?
It’s all about education: education from duly qualified professionals who are able to present first home buyers with real, workable solutions. Through discipline, determination and some creative thinking, the property market can become much more accessible.
It’s up to us as a community of parents, finance experts and media channels to stop blaming and start empowering.
Below are three strategies that first home buyers should be encouraged to consider depending on their personal and financial circumstances.
1. Seek expert advice
Having worked in housing finance for over 25 years, the single biggest mistake I see first home buyers make is failing to seek professional advice early. It is common for first home buyers to resist entering the housing market because they believe they won’t be able to service the loan — or won’t be able to save the required deposit.
The problem though is that these assumptions are very often formed in the absence of real information and expert opinion.
Many first home buyers are surprised to learn that they can service a housing loan — with or without making minor adjustments to their current lifestyle and existing debts — and can save the required deposit if they commit to a structured savings plan.
Lesson # 1. Seek professional advice before making any assumptions. And remember that with a healthy dose of discipline and sacrifice, you may be able to achieve more than you thought.
2. Consider an investment property
Even with a savings plan in place or a deposit in hand, some first home buyers are simply not able to service a loan for a home they intend to occupy in their suburb of choice. But that shouldn’t mean they can’t enter the housing market at all. Today, many first home buyers are breaking into the housing market by purchasing an investment property in an area they can afford. This strategy allows them to use the property’s rental income to assist in making the loan repayments. They build equity in their first property while renting in a suburb they prefer to live. Down the track — when their personal income improves and they can service an owner-occupied home loan — they may then choose to retain the investment property or sell to use the net proceeds as they see fit. Although this option may veto the First Home Owner Grant entitlement, experience has shown that the upside far outweighs the downside.
Lesson # 2. When loan serviceability is an issue, an investment property may be the best way to break into the market without significantly sacrificing your current lifestyle.
3. Consider a parental guarantee
Where loan serviceability is not a problem but the capacity to save the deposit and other settlement costs is, a parental guarantee may provide a solution. This option involves a parent providing a security guarantee to allow the lender to lend as much as 109% of the purchase price — thereby eliminating or significantly reducing the size of the deposit needed. When a parental guarantee is provided, the lender’s overall loan to valuation ratio will not exceed 80% and thereby eliminates the need to pay mortgage insurance. Typically, the parent’s home is used as the security property to support their parental guarantee.
Lesson # 3. If saving the required deposit is a problem but loan serviceability is not, a parental guarantee may be an option to allow first home buyers to purchase a home after all.
Over to you
When confronted with a challenge, whether in life or business, blame and procrastination simply make a bad situation worse. So let’s stop dissecting the problem and start focusing on solutions. It starts with changing the conversation. Let’s give Australia’s aspiring first home buyers the support they need and the chance they deserve.
[Related: Real estate agency calls out 'generation selfish']
