Rising property prices across many parts of Australia have left many first home buyers doubting whether they will ever realise their dream of home ownership.
While some potential first home buyers are keen to get purchase a home, others are content to rent for the rest of their days.
There are pros and cons for both owning property and renting. In this article we explore both options.
Owning your own home is a great foundation for ensuring financial security in the future. Property is arguably one of the safest long-term ways to invest your money. Data shows house prices tend to double every 10 years, making property one of the safest and most lucrative investment classes. Data from CoreLogic shows Sydney house values increased 19.7% over the past year alone1.
Of course, if you do decide to purchase property, there are several things you need to keep in mind. First of all, the deposit. While most first home buyers should be able to service a mortgage, the biggest hurdle they will face is saving the initial deposit. Most lenders require borrowers to have a deposit of at least 10% of their intended property's purchase price. In other words, if you are looking to spend $500,000 on a home, you will need a deposit of at least $50,000 (plus costs). Where possible, it is a good idea for first home buyers to have a 20% deposit as this will help them to avoid paying Lenders Mortgage Insurance.
Lenders Mortgage Insurance is an insurance that covers the lender (not the borrower) in the event that the borrower defaults on their loan. It is payable if the borrower's loan is more than 80% of the value of their property. In addition to Lenders Mortgage Insurance, other costs to consider are Stamp Duty (a tax you pay during settlement), which will vary from state to state, and legal fees. These costs will vary depending on the price of the property you buy and where you buy it. It's important that you have clear expectations about these taxes and fees so you can save accordingly and know how much you might have to fork out in terms of costs.
Although most people would love to own a home, for many Australians this can seem like an unachievable goal. Depending where you choose to live, renting may be a more affordable option. If you're on a low income, between jobs, studying, or simply don't have enough money saved to put towards a deposit, renting will be a more attractive option.
Renting provides you with a level of flexibility you don't have when you buy a property. Considering the life of most loans is 30 years, buying will see you commit a large sum of money for a long period of time. If you are still shopping around and don't know where you'd like to settle, renting allows you to explore different suburbs or states.
You may prefer to rent in your city and buy elsewhere.
If you're unsure what options are available to you, you need help setting goals to save your deposit, or you'd like to know the next step to take in your financial journey, speak to a mortgage professional. We can help you work out the options that suit your financial situation.