First home buyers aren’t screwed: Experts explain why

Posted: 18 March 2021 4:51 pm
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With property prices forecast to grow up to 20% by the end of 2021, it's hard not to feel disenchanted. Here's why you shouldn't panic.

Are you a wanna-be first home buyer struggling with massive FOMO as you read headline after headline about property prices soaring out of control?

You're not alone.

With property prices forecast to grow up to 20% by the end of 2021, it's hard not to feel disenchanted.

But here's the thing to keep in mind. In 15 years of writing about property and finance, there's one thing I've come to know with absolute clarity and certainty: There is no such thing as the "right" or "wrong" time to buy property.

And you can never miss the boat altogether.

In a moment, I'll share the many ways your dream of home ownership can still be achieved. But first, money coach and author Max Phelps, founder of Golden Eggs and creator of the FIVE 2 Money Diet, explains why first home buyers don't need to be in a huge rush to buy right now.

"Surges in prices have happened repeatedly over the past decade, sometimes followed by small drops and other times followed by several years of growth," he explains.

Max Phelps, money coach and author

"The question should never be 'is now the right time to buy' but instead: 'is now the right time for ME to buy?' In other words, the market can be volatile no matter when you buy property, and [if you plan to hold for] less than 10 years in property, [that] is short term."

He adds, "For first home buyers, once we accept that the first property, for most people living in cities, won't be the last property we buy, then most of us find we're just buying a future investment property that we'll be living in temporarily. If we can dominate the mortgage, then buying ASAP is fine. If you're likely to have to sell to buy a bigger place, then the last thing you'd want to be doing is buying in a hot market."

Phelps credits the current boost in first-timer activity to record-low interest rates and schemes like the First Home Loan Deposit Scheme (FHLDS), which allows you to get into the property market with just a 5% deposit.

However Dr Andrew Wilson, chief economist at Archistar, predicts that the record surge in first home buyer activity will soon wind back, as sharply rising home prices are "set to continue, and government incentives and support policies [are soon] expiring".

"Faced with ongoing low incomes growth, it will be increasingly difficult for first home buyers to save the deposit necessary to keep up with higher prices. But for now, the Great Australian Dream is certainly alive and well," says Dr Wilson.

Indeed it is.

So what does all of this mean for you if you're keen to buy a home, this year, next year, or in the next five years? Do you need to act as soon as possible to avoid missing out when prices surge, or can you afford to wait?

The answer depends on you and your current situation. According to Phelps, for people who are well prepared, with a good plan and who are borrowing within their means, any time is a good time to buy. "If those steps aren't in place, then it's better to get ready now, to be able to buy with confidence next year," he says.

What should I do if… I have no deposit saved, but I want to become a homeowner?

Ignore all the headlines about property price growth. Ignore everyone and everything and stay focused on your own goal – which is to save a property deposit.

If you're serious about becoming a homeowner then you're going to need a plan. It might include things like:

  • Consolidating all of your personal debts so you can pay them off quickly
  • Transferring any credit cards to one 0% rate credit card, so you can pay it off, too
  • Drafting a budget, so you can work out how much you can afford to save
  • Changing your living arrangements if possible, so you can live somewhere cheaper and save more money

Most of all, you just need to get started. Get started saving, get started paying down your debts, get started in making yourself a good prospect for a bank to lend to.

With the FHLDS, you can buy a home with a 5% deposit. That means you could afford a $500,000 apartment in a capital city (or a freestanding home in a regional area) with just a $25,000 deposit. Depending on where you live, you may not even have to pay stamp duty.

What should I do if… I have a deposit of $25,000 or less saved?

Depending once again on where you live, you may be in a position to buy. On the Gold Coast as a first home buyer, $500,000 could fetch you a three-bedroom home in a decent suburb. You could buy an apartment in some areas for $300-350,000.

If you live in a more expensive area, consider rent-vesting – where you continue to live where you want, but you invest elsewhere. Our property price research shows that Australia-wide, an average of 12% growth is forecast. Many economists believe Brisbane is due for a property price boom in the next couple of years, so that could be a more affordable location than Sydney or Melbourne.

You might also be able to buddy up with a sibling, friend or even your parents and do a joint venture to buy a property.

What should I do if… I have a deposit of up to $100,000 saved?

Hit up those classifieds and start shopping with gusto! This kind of money is definitely enough to buy a quality property in the current market, you just have to have a clear strategy about where to look.

Depending on where you're buying, I'd recommend shopping for properties priced just below the stamp duty concession threshold: As soon as you buy your first property, you are no longer a first home buyer and you're no longer eligible for any grants or concessions, so do your best to access the free money while you can.

"A good example of getting it right is David and Ellie. I met them when they were looking at buying a three-bedroom terrace as their first home together as a couple," Phelps explains.

"It would have been a stretch for them [financially] at the time, been too big for their needs until they had kids and too small for their needs once any kids got older. After discussing their plan with a good money coach, they decided to buy a two-bedroom apartment in a better area that would meet their short term needs and make a good investment property long term, once they moved out."

The mortgage was manageable and as their career paths took their incomes higher, they eventually borrowed against their equity to buy a bigger family home.

Property markets move in cycles, and we happen to be at the beginning of an upwards swing. Over the last 12 months, many markets have experienced price declines. The moral of the story? Pay less attention to what the market is doing, and more attention to what you are doing to get purchase-ready, and you'll be well on your way to achieving your property ownership goals.

Are you ready to shop for your first home? Check out your home loan options first – compare now!

Find the right home loan now

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