If you want to buy your first home and think you might have to go live with your parents and survive on a diet of dry bread for years to make it happen, then new research into housing affordability might confirm your fears.
The data shows that 31% of all Australian households have very little capacity to save or to buy beyond what they need after meeting housing costs.
Professor Burke, who co authored the Australian Housing and Urban Research Institute report, A New Lens on Housing Affordability and Market Behaviour, says renters face some of the most severe affordability problems.
The study found that wannabe buyers with annual incomes less than $40,000 were forced out of buying a home altogether, while those with incomes between $40,000 and $80,000 could only afford homes in the outer suburbs or growth areas.
Not until income exceeded $100,000 was there much ability for buyers to purchase in the inner city or middle suburbs, the study found.
So in the current market, getting into your first home might take a different approach. Here are four ways that may help you throw your happy new home party sooner.
1. Rent to own
In a rent to own situation, the seller helps the buyer by allowing the buyer to rent the house for an agreed amount of time until they build up enough equity to qualify for a bank loan and own the house. The advantage of this situation is that you can move in without substantial upfront costs. It also provides an agreement on the final purchase price of the property.
If you decide to proceed and buy, the price you pay is contractually set and the rent paid reduces the remaining balance. If you decide not to buy you can walk away with no further commitments. Rich Harvey, CEO of propertybuyer.com.au, one of Sydney’s leading buyer advocacies says:
“The big advantage of this option is that you can get into your own home, without saving up a substantial deposit. However, you must be careful not to fall behind in rent and any other payments as you may lose the option to buy at the end of the lease."
2. Shared ownership
Buying a property with family or friends is a great way get your foot in the door. Property share mortgages are offered by many Australian banks. Shared ownership can help all parties to save a deposit in a shorter time and reduces the mortgage for your portion of the property.
Establishing a contractual agreement is important to avoid or mediate any future disagreements when selling the property, renegotiating the agreement, or buying each other out.
3. Parental assistance
The bank of mum and dad is another great way to give you a leg up on the property ladder through help with the initial deposit or leveraging the equity in their property for the deposit. With interest rates at their lowest for more than 50 years, there are some great rates and parent assist products available.
The best thing to do is to compare rates from all the lenders. Canstar is a great resource to start with.
4. Get out of town
Buying in the capital cities can seem like an impossible proposition and by heading out of town you’ll find that prices are more affordable. Just make sure you do your homework as regional and country areas can be more susceptible to market forces than the inner-city and if the market declines it’s often the regions that are the first to suffer and hardest hit.
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