Owning your own home is still the ‘great Australian dream’. No one likes the uncertainty of wondering when the next rental inspection will be, or the hassle of having to shift location when the landlord decides to sell.
The affordability of housing in Australia is becoming an increasing issue for many young Australians looking to get on the property ladder. In the last forty years, the average Australian’s wage has increased to ten times what it was. Unfortunately, during this time, the average price of an Australian home has increased almost 30 times. This has seen a drop in the level of home ownership and a bleak future of property rental for a large percentage of the population.
It’s not all doom and gloom though. Home ownership is not an unobtainable dream if you’re willing to do what’s required to get there. Below we lay out some of the key steps you’ll need to put in place in order to purchase your first house.
- Set a track record of savings. You will need to find a deposit and demonstrate to the bank that you have a history of savings. Fortunately, the lenders are largely focused on the 90-day period prior to you applying for a loan so you don’t need to be concerned if you don’t have a history of adding to your savings account. ‘Savings’ can include any funds deposited into your savings account during this time including from other family members so it does offer a good degree of flexibility.
- Control your spending. Living within your means is a necessity if you want to secure a loan and keep your finances under control. You will need to devote a portion of your income towards repayments. If you’re not currently keeping your expenses at less than your income this will be a concern to the bank and will affect your ability to get finance.
- Clear up your debt and get rid of unnecessary credit cards. Your ability to take on more debt will be directly related to the level and type of debt you currently have. Not all debt is viewed equally by a lender. Existing credit card debt, which is unsecured, will be less favourably viewed than a secured existing loan. It isn’t just the level of debt you have but the level of debt you are approved for. A $20,000 credit card limit will be viewed as potentially $20,000 of existing debt by a lender whether you use it or not. The good news is you can quickly increase your borrowing capacity exponentially by reducing credit card limits and debt. Even reducing $5,000 off your credit card limit can open up $20,000, $30,000 or even $50,000 of secured lending capacity due to the ability to service the debt at lower interest rates. Who can give you good advice when you need it? You may have a trusted friend or family member but you should also consider talking to a professional such as a mortgage broker who can help you with your calculations to get approval. A financial planner can also assist by helping map out a savings plan and investment strategy that will multiply your deposit much quicker. Being informed and seeking advice from those with experience can prevent considerable heartache and hardship later through poor financial decisions and an over-commitment to your obligations.
You should consider getting professional advice. This will help you understand your options. Fear often comes from not understanding and simply having a good Advisor explain your situation will go a long way towards improving how you feel and what you can do.
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The information in this article is general in nature and does not take into consideration your personal situation or circumstances. You should consider whether the information contained in this article is suitable to your needs and where appropriate, seek professional advice from a Financial Advisor or other finance professional.