First Home Buyers - Find an Affordable Home and Save for it - Monica van Riet, Mortgage Choice South Melbourne

Mark Bouris’ article from The Age recently was very timely, and a rather good reality check. I felt compelled to share it with you, as perhaps it might put some things back into perspective for people. When I bought my first home, I had to work hard, save hard, and eventually buy something a little bit smaller and further out than I’d originally liked, because that’s what I could afford. Interest rates were around 3% higher and I was earning considerably less then, but now 12 years later it’s been one of the most solid investment properties in my portfolio. Here’s the article anyhow…

Housing affordability for first home buyers loomed large in the news this week, largely because properties in Sydney and Melbourne are selling for more than many first-timers can afford. But if you're a first home buyer, is this really a time to panic just because you missed out at a couple of auctions?

If there's 20 bidders at an auction, 19 miss out.

If you're committed, you still have to save as much deposit as you need, and enough to cover the stamp duty and conveyancing costs. If you don't have enough, you have to save more.

You also have to monitor your ability to pay the cost of the loan. So be realistic about how much income you can rely upon and what it takes to service your mortgage. Or, could you do what most home buyers do and buy a cheaper property?

If you don't want to adjust your goals downwards, you'll have to adjust upwards your deposit, stamp duty and loan repayment equations.

Also, use an online loan calculator before saying yes to a low-equity mortgage. If housing values weaken again, 20 per cent equity feels better than 10 per cent.

On a policy level, would you like to see governments releasing more land to meet demand? Or should the government promote more competition in the mortgage market, creating more options for more consumers? Should New South Wales reinstate the First Home Owners Grant for existing homes? Regardless, I do wonder if the affordability story is the whole story. Might it have more to do with where people want to buy and less to do with a generation missing out?

Stephen Koukoulas, an economist writing in Business Spectator, uses Reserve Bank numbers and finds that new home loan repayments as a percentage of household income is around the same now as it has been for 30 years. He concludes, ''there is no evidence of a first home buyers' affordability problem.'' He goes further: the prices of so-called cheap city properties bought by older generations were offset by the high interest rates; the rising Sydney house prices are offset by the historically low interest rates.

Interest rates and property markets fluctuate, but households and lenders stay within basic serviceability ranges.

This may not be the desired conclusion for those who have set their hearts on buying somewhere beyond their resources. And it doesn't fit with the idea of a generational conflict where one cohort is ''shut out''. Actually, every first home buyer finds it hard - people in my generation bought modest first homes with interest rates at 20 per cent.

Perhaps the current first home buyers would be better served by recognising the opportunity rather than the problem. At 4.8 per cent, a mortgage is cheaper than it will be again in our lifetimes. This is a massive, historical opportunity. So forget about scapegoats and do what you need to do which is boost your deposit, set your sights on what is affordable and think in steps - it's a long road.

Mark Bouris is chairman of financial services group Yellow Brick Road.

Posted in: First home buyers

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