Deflated by interest rate rises and home price falls? Here’s why you should fight

Dreams of owning a home have turned sour for many people, but there are plenty of reasons to persist.

It’s sad to see young homebuyers giving up on owning a home – feeling priced out of the market first by the housing boom and then by soaring interest rates.

A barrage of Reserve Bank rate rises since May 2022 has pushed up mortgage repayments more than 50 per cent for many, and the impact on people’s borrowing power has been devastating.

A typical couple earning average wages can now borrow $300,000 less than they could a year ago, and Australian Bureau of Statistics figures show first homebuyer numbers plunged in 2022.

With median-priced homes across capital cities ranging from $485,000 to $981,000, according to PropTrack data, scraping together a 20 per cent deposit often requires years of saving, and buyers must also battle with a surging cost of living driving up almost every other household expense.

However, owning real estate should be the number one priority of anyone in their 20s and 30s, and there are several ways to get a foot in the door.

Real estate is the most important asset for financial security. Put simply, if you own a home you do not have to pay ever-rising rents, and when the home is paid off you have an asset constantly rising in value. You also have the freedom to do what you want without seeking approval from landlords or property managers.

There are many reasons why young buyers should focus on home ownership. Picture: iStock

Property offers the biggest tax break of any investment assets, because it is exempt from capital gains tax. So if your $650,000 home doubles in value over a decade, that’s $650,000 of tax-free profit.

It’s also a popular and powerful tool for building wealth elsewhere. A home can be used as security to buy investment properties, shares and other growth assets.

Property will always remain desirable – they’re not making any more of it – and those who feel forever trapped outside the market have more options than ever.

For starters, you don’t need a 20 per cent deposit. My first deposit many years ago was 2.5 per cent – followed by a year of mad saving while our home was built – and government incentives today also allow small deposits.

The First Home Guarantee Scheme has helped tens of thousands of first home buyers into the market with just a 5 per cent deposit, although there are eligibility rules around property values and income caps.

Most states offer first homebuyer grants, usually $10,000-$15,000 lump sums towards new homes, and there also may be stamp duty relief. Rules vary between states and territories, so check what your government says.

The federal government and some lenders also offer shared equity schemes, where they take a minority stake in your home – lowering your repayments but reducing your share of the profit when it eventually sells.

Recent home price falls – and potential for more weakness – may create further bargains for buyers this year, and there are plenty of opportunities for family members to help such as joint loans, going guarantor or chipping in cash.

Home ownership may seem like an insurmountable mountain right now, but small steps – one by one – can get almost anyone to the top.

Originally published as Deflated by interest rate rises and home price falls? Here’s why you should fight