February 28, 2017
Nearly half of all Australian first home buyers entered the property market in a bid to get off the revolving rental train, new research has revealed.
According to Mortgage Choice and Core Data's Evolving Great Australian Dream report, for 48.8% of first home buyers, not paying rent was the key motivator for getting onto the property ladder.
Mortgage Choice chief executive officer John Flavell said he wasn't surprised by the findings and understood that many Australians would prefer to pay down their own mortgage rather than some else's home loan.
“While renting can often be a cheaper alternative to buying a home and making the regular mortgage repayments, that money is only going towards your living arrangements and someone else's mortgage, rather than a tangible asset that you own,” he said.
“Based on a back-of-envelope calculation, if you were to buy a median-priced house in Melbourne for $620,000* and borrow 80% of the property price, your monthly repayments on a 30-year, P&I home loan with an interest rate of 3.79% p.a., would be $2,308.
“Meanwhile, data from CoreLogic shows the median rental price for a house in Melbourne is $400 a week, or approximately $1,730 a month.
“So, for an extra $578 a month, you could own a property and be using your income to build a portfolio of assets.”
Mr Flavell said there is no right or wrong decision when it comes to buying and owning property versus renting.
“At the end of the day, it all comes down to an individual's personal circumstances and what they feel comfortable with,” he said.
According to the research, some of the other reasons why first home buyers chose to buy property included: being able to afford it (30.9%), reaching a certain age (28.5%), having children (18.7%), and finding the right place (18.7%).
Mr Flavell said property was a substantial financial commitment, but one that had many long-term benefits.
“Property is a long-term investment that can potentially help you to future-proof your wealth,” he said.
“While you may not be able to buy in your desired area, once you are on the ladder, it's easier to grow your wealth and upgrade into a better home down the track.”
Mr Flavell said another option for first home buyers was to buy an investment property in an affordable suburb and rent in their preferred location.
“Rent-vesting is a great option for home buyers wanting to get onto the property ladder as they can still enjoy the benefits of home ownership, while living where they prefer,” he said.
“Our research shows that in 2016, 36.1% of investors were first home buyers, up from 20% two years ago.
“Looking forward, we believe this figure will continue to grow as rent-vesting becomes more popular and buyers see it as a tangible way to get their foot on the property ladder sooner rather than later.
“At the end of the day, your decision to buy or rent should come down to your personal and financial circumstances. It is important to always seek the advice and expertise of a qualified professional before you make any major property purchasing decisions.”