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 we believe that it’s not. Read on to find out our advice on how to escape the “rent trap”, and for the steps that will help make your first dream home a reality.
You're doing a great job
Firstly, you need to be kind to yourself. Saving a deposit isn’t easy.
It’s important to remind yourself that renting is okay. No one assumes you’re in a bad financial situation because you’re renting – and anyone who does you don’t need in your life! Some of the wealthiest people in Australia rent, and they know plenty about finance. Why, you may ask?
Often, your rent payments are much less than a mortgage and the interest you’d have to pay back to the bank. While renting, you can potentially save more money – which you can then put towards other investments, including property.
People often say that renters are “paying someone else’s mortgage”, but that doesn’t mean you are going backwards. 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.
Get real
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.
One of the most important things is to understand your living expenditure. That’s true whether you’ve purchase zero homes or four homes. Keep track of your finances and understand what payments are necessary. You don’t have to completely cut the nonessentails either – we still want you to enjoy your life! Find what brings you joy and keep buying it. This is about finding those little payments here and there that can add up over time.
Take your gym membership, for example. It might take you four years instead of two to save for your deposit, 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.
The First Home Owner Grant is a great option of course and should be on all first home buyers radar. The value of this grant is different based on your state and whether you live regional or metro, so be sure to find out the grant's value where you plan on building.
Finally, there's the newest addition, the Family Home Guarantee, which is aimed at single parents who earn under $125,000 a year. The Family Home Guarantee allows those who qualify to purchase a home with as little as 2 per cent deposit.
Learn more about the First Home Owner Grant and First Home Loan Deposit Scheme here.
For more information about government grants and schemes, please visit either the Federal Government website or your State Government's website. Please note that the above information is true as of May 2021.
Alternatively, you can get in touch with a New Home Advisor who know the grants inside out and can explain them in plain English.
Find your purpose
Before you set out on this journey, you need one very important thing: your purpose.
Understand why you’re buying a home and why you want to build. 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.
Forget about the home you buy or build for a moment – the real value is in the lesson you learn along the way. The financial discipline of saving money and buying a first home imparts valuable knowledge that you’ll hold on to forever. You’ll be able to budget for family and holidays with ease!
The first steps to take before buying your first 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 Mortgage 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 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.
Read our list of 11 tips to make saving for your first home deposit a cinch.
If you are thinking about building, Metricon offers a range of solutions, including home designs and land packages curated specially for first home buyers. For more advice, get in touch with a team member today.
While we've tried to be as helpful as possible, this article should not be taken as professional financial advice. It contains general information only, and you should seek out independent, professional advice before making any financial decisions.
