How can I buy my first home in this economy? Experts rank most popular methods
“Young people can’t afford a house any more ... and I don’t know the answer.”
Those aren’t words you want to hear from one of Australia’s leading personal finance experts, but it’s what Noel Whittaker, who bought his first home in a “working man’s suburb” in Brisbane aged 23, had to say. Labor and the Coalition have just unveiled policies they claim would address first home buyers being priced out of the property market. Economists, meanwhile, argue that, in reality, they’re “pretty regressive”.
A fact both Prime Minister Anthony Albanese and Opposition Leader Peter Dutton are aware of is this: May will be the first time Baby Boomers are outnumbered by Millennials and Gen Z at the ballot box, with almost 50 per cent of voters being aged 44 or younger. Two decades ago, the average first home buyer bought a property when they were in their mid-20s. Now, they’re lucky if they can buy one in their mid-30s that isn’t hours away from their parents.
How can I buy my first property in this economy? We asked experts to rank the six most popular methods from best to worst.Credit: Getty Images
“What we’re seeing is classic electoral politics,” the Grattan Institute’s housing and economic security deputy program director, Joey Moloney, says. “Everyone’s coalescing around the first home buyer because that’s where the housing affordability crisis is felt very acutely. People are having anxiety about where they’re going to break into home ownership.”
How can I buy my first home in this economy?
There is no magic fix to the country’s housing crisis, and while both Labor and the Coalition outlined their housing policies this week, economists are warning that the largely demand-driven plans will ultimately drive up house prices.
Renters, saddled with a “deposit hurdle that’s harder than it’s ever been” and skyrocketing rental payments, Moloney says, are also being left behind.
“One of the things that’s just true by definition is that if you’re a home owner, you’re in a better position than a renter,” he says.
“If I was a renter in the city and my rent keeps going up at a pretty rapid rate, I’m asking the question, ‘What’s in this for me? I’m still way off home ownership. None of this stuff is going to help me right now.’”
Until “the missing middle”, as Moloney puts it, is addressed by building more low-rise, medium-density homes including townhouses and duplexes in inner-city suburbs, there are six popular property-purchase methods first home buyers are using.
We asked a team of experts – Whittaker, Invest With Queenie director and co-founder Queenie Tan, and Zein El Hassan, a financial services lawyer at Mills Oakley and wealth management industry commentator – to rank them from best to worst. Here’s what they had to say.
Most popular home buying methods, ranked from best to worst by experts*
- Bank of mum and dad
- Existing government schemes (particularly First Home Buyers Assistance Scheme, First Home Owner Grant [New Home] and Help to Buy)
- Withdrawing from super to fund a deposit (with the First Home Super Saver Scheme)
- Rentvesting
- Buying with a partner, friend or sibling
- Forty-year mortgages
* Whittaker, Tan and El Hassan were given six methods to rank from best to worst. The best method was given a score of six, with the worst given a score of one. The rankings you see are from the method that had the highest overall score (best) to the method that had the lowest overall score (worst).
What is the best method for first home buyers to enter the property market?
Like the title of the film that saw Meryl Streep lose a Golden Globe to herself in 2010, it’s complicated.
While utilising the bank of mum and dad is generally considered the best method for first home buyers who are in a position fortunate enough to do so, not everyone is lucky enough to have that option – and it puts pressure on parents and grandparents who may also be struggling.
It also doesn’t suddenly teach first home buyers healthy budgeting practices or discipline, which are needed to fulfil the commitment of long-term repayments. Put simply by Whittaker: “If you hand money to kids who are spendthrifts, it will just be frittered away.”
Whittaker also notes the possibility of an estranged partner walking away with a share of the family assets in the event of a relationship breakdown. In that case, he’d recommend the assistance be in the form of an interest-free loan that’s properly documented.
Tan, meanwhile, cautions those in this situation to manage expectations, saying: “There can be some risks or tension in the relationship if [they’re not] clear. Still, if it’s an option, it can make a huge difference.”
Existing government schemes, such as the First Home Buyers Assistance Scheme, should be one of the first things people look into, Tan says. While they are means-tested, if eligible, buyers can save tens of thousands of dollars – though she warns those who are looking to buy with a partner, friend or sibling “usually can’t claim them twice.”
Alongside those, “rentvesting” and 40-year mortgages also don’t address the issue of saving for a deposit, which is the biggest hurdle to home ownership many are facing as they grapple with cost-of-living.
“Start by understanding the numbers,” Tan says. “A lot of people still think you need a 20 per cent deposit, but there are options out there now for 5 per cent deposits, and even ones with no lenders mortgage insurance (thanks to the First Home Guarantee Scheme).”
When she bought her first property with her partner aged 23, Tan says, they saved $100,000, which was a 20 per cent deposit. Looking back, she says what would have made a big difference for her was being able to use voluntary superannuation contributions to increase savings or buy with a smaller deposit.
As for where to start, El Hassan notes: “There are many free and affordable digital financial wellbeing and financial advice tools and calculators to ‘run the numbers’ and help you better understand what you are getting into before you commit to purchasing a property. So, give them a go.”
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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