Consumer report: Economic factors that could influence your decision to buy

Being aware of wider economic considerations can help you make more informed decisions when buying a property.

In this report, we'll take a closer look at some of the current factors influencing the decisions Aussies make around purchasing property.

1. Choosing to save longer vs buying now

Prospective buyers tend to be torn between saving longer for a bigger deposit, or buying now and taking on a bigger home loan.

Risk tolerance, current assets, extra resources, desired timeframe and more all need to be weighed up.

Lenders also tend to find clear patterns of saving and a larger deposit more attractive. Mortgage stress can become an issue if finances aren't carefully managed.

In practical terms, though? It does mean a longer period of paying rent or living at home with family.

By contrast, buying now lets you start building equity in a property.

If you have less than a 20% deposit saved, many lenders will also charge Lenders Mortgage Insurance (LMI), which protects them against the possibility of you defaulting on the loan.

But though it tends to be seen as an additional cost to borrowers, LMI from providers like QBE can actually be used as a tool to purchase sooner.

Including the cost of LMI in your home loan will mean your repayments will be slightly higher. But it also means that you won't need to save as long before being able to get on the property ladder or expand your portfolio.

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2. Rising house prices

For the average Australian looking to buy, house prices can still present a major challenge. In fact, According to CoreLogic, Australian house prices rose by 8.1% in 2023.

Figures like this can serve as an illustration of the difficulties that come with trying to save your way into a deposit.

For some, it will mean simply looking elsewhere to buy or delaying the purchasing decision.

For others, it may be an opportunity to use LMI from providers like QBE to boost their overall borrowing power. Though it can mean a larger home loan (at least until enough equity is built up) it can be used to opt for a home loan and make a purchasing decision sooner.

3. Rising interest rates

2023 saw a huge number of fixed-rate loans come to an end. This led to a significant jump in repayments for many Australians.

Refinancing has been a useful tool in some of these situations. However, it's not always straightforward.

Research from Finder's Housing Market Report indicated that in mid-2022, an Australian borrower could score an interest rate below 2.50%. By the end of 2023, the average interest rate had jumped to 5.41%.

LMI may also be necessary when refinancing, depending on how much equity you've built up.

Still, refinancing can also be an opportunity to add extra features to your loan. Using LMI doesn't have to restrict your options, either. LMI providers like QBE work with a wide range of lenders to offer a broad selection of loan products.

4. Generation gaps and access to resources

There's been a significant amount of research and reporting on the challenges Gen Z in particular face when they're trying to get onto the property market.

And the numbers do suggest that Gen Z does get a rough deal at times. Since 2015, the average Gen Z Australian (i.e. those born in 1995 and later) are likely to pay 14 times their average salary for the total cost of their home loan. For a deposit, they're looking at 140% of their average annual salary.

By contrast, Gen X Aussies (those born between 1960 and 1979) since 1980 have also required 14 times the average salary for a mortgage. But they only required 90% of a year's salary for a deposit.**

5. Family assistance

Contrary to the popular image of rich kids being gifted homes by their parents, Finder research indicated that only 1 in 10 buyers received help from their parents or family in purchasing a home.

So for those who can't get family assistance, what's the next step?

Everyone's situation is different, but LMI can present a means for people to access finance if they're unable to seek assistance from their family.

Additionally, even if you do have family help, LMI can still be used to enhance your overall borrowing power.

6. Your current financial circumstances

When it comes to buying, your finances are likely going to be the largest factor of all. While macroeconomic factors are important to note, they're not always going to be a direct reflection of your situation.

If you're relatively young and starting completely from scratch, it may be worth speaking to a financial planner, to get a feel for how you can set yourself up for home-buying success.

Taking the next steps

Keeping an eye on wider trends and market conditions can help you make more informed decisions when the time comes to purchase a home or investment property.

However, there isn't necessarily a specific "best" time to buy. So it's always worth consulting with experts to see what sort of action you should take, based on your specific circumstances.

You can also find a range of resources on purchasing property right here on Finder.

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Sources:

*Finder survey, August 2023
**Finder survey, June 2023