Thanks to a booming real estate market, housing affordability for city-dwelling Millennials in Australia is a widely recognised economic challenge. If you've done any research into buying your first home, we can almost guarantee you've received some very bad, or at least, tone-deaf advice.
There's no magic pill to saving for a first home deposit, other than financial discipline and finding the right home for your budget and objectives. This can be difficult if you currently have no savings or are living paycheck to paycheck.
It might sound like doom and gloom, but FinancePath’s Managing Director, Mark Attard, is here to assure you that it’s not. Read on to hear Mark’s expert advice on how to escape the “rent trap”, and for meaningful steps that will help make your first dream home a reality.
You're doing a great job
Mark's first piece of advice? Be kind to yourself.
“Saving up a deposit isn’t easy, and understand that if you're renting, that's okay," he says. "People don't have to think they're in a bad situation just because they’re renting. Some of the most financially literate, wealthy people in our country rent." Why, you may ask?
"Because they can rent for less than the interest they would have to pay to a bank,” Mark says, “The key to their success is then using the money they save towards other investments, including property."
If you feel like “paying someone else's mortgage” means going backwards, know that it doesn’t have to. The key to is to have a clear focus on what you want to achieve. If you're genuinely diligent with your spending and have clarity about your investment goals, you may find that staying out of the property market works just as well for your interests.
It can be confronting to think about money and be honest with ourselves about our living expenses. But to achieve your property goals, you've got to know where it goes to be able to decide what you’re willing to give up. Aim to spend and save every dollar thoughtfully.
"Whether you've got your own home, you've got four homes, or you're just starting out — the most important thing is to have an understanding of your living expenditure," he says. "Understand what you've got going out as a necessity, understand what is nonessential, and make sure that any nonessential spending is going on things that make you happy.”
Take your fancy gym membership, for example. It might take you four years instead of two to save for your deposit, but as Mark says, it all comes back to priorities. If dropping the gym membership would mean you stop exercising, hold on to it and take care of your ever-important health. Look for other areas to save money or reset your timeframe. Just keep in mind that with property prices rising in most areas, the longer it takes, the more you may have to save.
Watching your pennies doesn't have to mean a life without pleasure, so long as you're happy with the compromise and are still saving consistently. Most people will find they can still enjoy the things that are important and save just by cutting out the expenses that they hardly remember buying.
Play to your (financial) strengths
There are plenty of emotional benefits associated with owning your own home — the achievement, the security, and the feeling that comes with being able to say, "This is mine". There are also lots of financial incentives that stem from homeownership. One of the best perks of owning and living in your own home is that if you do decide to sell it, the proceeds are capital gains tax-free, meaning more money in your pocket for your next move on the property ladder.
There are also Australian government schemes to help first home buyers enter the property market.
There's the First Home Super Savings Scheme, where you make voluntary contributions into your super fund — basically a before or after-tax savings account you won't dip into. Another viable consideration is the First Home Loan Deposit Scheme, where the Commonwealth Government guarantees your deposit if it's less than 20 per cent of the property's purchase price, saving you from having to pay lenders mortgage insurance.
Find your purpose
Before you set out on this journey, you need one very important thing: your purpose.
"Above all, understand why you're buying a home, why you want to build," Mark says. If it's a financial decision, or if it's about the emotional security of having your own home, being clear about the ‘why’ will help you stay motivated.
And the best part? You can't lose. "All first-time buyers I've encountered who have built their first property before they're 30 — regardless of whether it was the best property or not — were in a much stronger financial position by the time they were 40 than if they didn't," Mark says. "The financial discipline of saving and buying your first home will set you up in years to come."
Mark is a firm believer that there's no time like the present. "As life goes on, more expenditure comes along, and it doesn't get any easier," he says. "There's always an option if you understand what's in your budget and have discipline."
So, what are you waiting for? It's time to get started.
Mark's first steps for purchasing your new home
- Opening a high-interest savings account is one thing but making sure you're not tempted to withdraw from it is even more important.
- If you want to build up that deposit quicker, you can look at assets that have capital growth as well as income. Just don't forget that returns are tied to risk, and there could be a capital loss so discuss your options with a reputable financial advisor who understands your risk profile.
- Work out what you would feel comfortable contributing from your wages towards mortgage repayments. Start putting that amount straight into a dedicated bank account to prove to yourself you can save.
- Do the math on whether you want a home to live in or an investment property to rent out. Regardless, always look to buy something that will appreciate.
- If you have a car or personal loans, discuss with a Credit Advisor whether you should pay your debt off before you save to enter the housing market.
- Look to transfer any existing credit card debt to another card on a balance transfer deal and put plans in place to clear the debt within its balance transfer period. Cut the old and new cards up. *
- If you plan on building, do some research into the First Home Loan Deposit Scheme, where reduced levels of savings are required thanks to government-provided support.
- The First Home Super Savings Scheme (FHSSS) is another scheme to assist with building up savings more effectively.
If you’d like more information on how to get into you first home sooner and make your home ownership dream a reality contact the FinancePath team for a 10-minute chat today.