Victoria rental crisis: How tenants can escape the rent trap with as little as $18,500
Melbourne tenants desperate to escape the city’s rental crisis can buy their way out with as little as $18,500 in the bank and three months to lock in a loan.
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Melbourne tenants desperate to escape the city’s rental crisis can buy their way out with as little as $18,500 in the bank and three months to lock in a loan.
For some, the path to owning their own home could be as simple as selling their car or a few months back living with their parents.
The city’s vacancy rate reached a record low this week and Mortgage Choice broker David Thurmond said the “conversation has changed” as a growing number of frustrated tenants were sick of rising costs and busy rental inspections.
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“It’s not just first-home buyers looking to buy a house — now it’s ‘I need to get out of the rental market’,” Mr Thurmond said.
“I spoke to a guy this week who is going from $2400 a month in rent to $2200 for his mortgage.
“And that could come down this year, while rent is more likely to go up until we work out the issues with housing volume.”
The Berwick-based Mortgage Choice senior loan writer said singles earning $90,000 and couples with a child and $120,000 combined income could borrow up to $400,000, so long as they had a matching deposit — enough to escape the rental trap.
Mr Thurmond said while slashing car loans, HECS debts and credit cards were important, one of the most important things tenants could do was tap into First Home Guarantee, allowing them to buy with a 5 per cent deposit and have the federal government guarantee the rest of the loan to remove the need to pay for expensive lender’s mortgage insurance.
It could help a tenant earning $70,000 with as little as $18,500 in savings buy a $300,000 regional house or suburban apartment.
Buyer’s advocate and the host of The First Home Guidebook podcast Amy Lunardi said buying an escape from the rental market was more achievable than many tenants thought.
Even those who had previously owned a home, such as divorcees, could still get help from the government in the form of the Victorian Homebuyer Fund in which the state pays for up to 25 per cent of a home.
While the scheme is rarely discussed by mortgage brokers as it is limited to just three lenders, Ms Lunardi said the first step was still to talk with a broker to get a qualified overview of how close you were to being able to buy — and your budget.
HOW MUCH DO YOU NEED TO ESCAPE?
Home price — Minimum deposit/fees — Minimum income
$300,000 — $18,500 — $70,000 ($290,000 loan)
$400,000 — $23,500 — $83,000 ($382,000 loan)
$500,000 — $28,500 — $96,500 ($478,000 loan)
$600,000 — $33,500 — $109,500 ($570,000 loan)
$700,000 — $63,213 — $123,500 (668,000 loan)
Source: Compare the Market, Mortgage Choice
*Estimates assume gross single income, no dependants, annual living expenses of approximately $26,500, minimum deposit used and no stamp duty below $600,000
“And even if for you it’s two years away, you don’t have to feel like you will be trapped in the rental market forever,” she said.
However, for anyone ready to buy now she urged quick action, even if they had months left on a fixed-term lease, as the purchasing process could take a long time.
“Now is the time to get in, before the market does start to move again if we do have a rate cut,” Ms Lunardi said.
Ironically, the rental crisis means the costs for breaking a lease early could be minimal as a new tenant is likely to be found quickly.
For those still needing to save, finding a way to spend less on rent by sharing with a friend or moving back in with your parents would go a lot further than swapping barista brews for instant coffees, she added.
“And it will show less liabilities when you make a loan application,” Ms Lunardi said.
Ray White property management national operations manager Liz Foster said with 59,000 homes under management around the state, they had noticed a 5.7 per cent rise in costs in the state’s metropolitan areas but a decline in regional areas — hinting a rural move could also take pressure off tenants in the short term.
However, Ms Foster noted there was a “clear trend” of landlords selling up, leaving fewer homes for rent.
With a 32 per cent increase in people inspecting homes for sale in January compared to the same time in 2023, she said she believed “a lot of these potential buyers are renters”.
Their data suggests families looking for a way out of the rental crisis might have their best odds in Werribee, where 119 houses sold for less than $750,000 last year. Melton South could also help, with 116 sales under the threshold for the vast majority of government assistance programs for those struggling to buy a home.
Melbourne’s CBD notched 871 sales for units under $750,000, the highest number of any suburb in the country last year — a strong prospect for singles and couples.
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