Rent gone up? Here’s how to buy your first home sooner
Figures show that rents are rising, but Australians are still prioritising buying or saving for a home in 2022.
If you’ve been renting in Australia over the last 2 years, you may have been able to negotiate better prices as the closed borders meant more apartments sat empty.
According to Domain, in March 2020, the average weekly rent in Sydney was $520. It dropped down to a low of $470 throughout the pandemic, with Canberra overtaking the New South Wales capital as the most expensive city to rent in.
Melbourne renters have seen a larger drop of $60 a week, with the city falling to the second cheapest in Australia.
Unfortunately, the era of cheaper rent is coming to an end.
REA Group data shows that rents rose 4.7% over the last 3 months of 2021, the biggest increase in rent in any period over the last 5 years.
Research from Amazon Prime Video shows that buying or saving for a property is among the top 3 goals of Australians for 2022, so could this be the time to do it as renting becomes more expensive?
Buying your first property might seem too big a hurdle to climb right now, but there are a number of ways you could take out your first home loan sooner than you think.
Adjust what you’re looking for
When looking for their dream home, Amazon’s research shows that Australians are very particular about what they want. 93% consider the natural light of the home, 63% want large rooms, and 62% want multiple bedrooms and bathrooms.
Unfortunately, with house prices climbing the way they are, it might be worth rethinking some of those ideals.
There are also fewer properties on the market at the moment. This doesn’t mean you have to give up on your dream of your 4-bedroom house with beautiful light and a huge hallway. Buying a smaller property first is a great step to getting on to the property ladder this year, while building up your equity for that perfect future home.
Bite the bullet on lender’s mortgage insurance
Taking out lender’s mortgage insurance can actually reduce the amount you need for a deposit. It covers the lender, not you, if you can’t pay your mortgage.
With it, you can potentially reduce the amount of your deposit to as little as 5%.
Check out Finder’s LMI calculator, to see how much this could save you.
Apply for the First Home Loan Deposit Scheme
There are a couple of different schemes available to make it easier for first home buyers.
The First Home Loan Deposit Scheme is a government initiative that allows borrowers to buy a property with as little as a 5% deposit. There are limited places available each year, and not every lender is partnered with the scheme, so make sure you do your research.
You’ve also got the New Home Guarantee scheme for first home buyers wanting to build or buy a brand new home.
Show your rent as proof of ability to pay
Look out for banks or lenders who will accept your rental payments as "genuine savings". You don’t necessarily need to have the cash in the bank to prove your ability to save, many lenders will look at your rental history.
There are differing conditions attached depending on the lender; some will look at 3 months of rental history and others 12 months.
Shop around, there are additional costs and varying rates and products
Don’t look at the company you already bank with and then walk away. There are so many products on the market, each with different interest rates depending on your circumstances.
As a first home buyer, there are some excellent options out there for you to get a home loan sooner.
If you’re self-employed, or have a poor credit history, there are lenders out there for you too.
Find a home loan that is right for you by comparing here.
Is it possible to get a short term home loan if you are a retiree…I would like to borrow less than 50% equity in a home paying it off in 10 years. I am continually told that as an older person an exit strategy is needed as the sale of the house cannot be considered in the event of death. As house prices are not going down any time soon where is the logic to this stance which is a guide line not a legal requirement.
Hi Richard,
Yes you are right, the bank or lender needs to prove there is an exit strategy at play and unfortunately, death is not considered an adequate “strategy.” This mainly comes down to responsible lending standards.
Bank’s need to demonstrate that getting the loan is in your best interests now and in the future, and extending a loan to an older person after they’ve left the workforce (or close to them retiring) could be considered irresponsible. They need to be confident that you can service the loan for the full duration.
You’ve suggested you wish to borrow less than 50% of the home’s value. I’m not sure the exact value, but 45-50% is quite a high value to repay in 10 years. Generally, residential loans are structured over 30 years for 80% of the property’s value. Your repayments would be very high compared to a standard residential loan, which could make it difficult to find a lender willing to give you a loan.
I think it would be a really good idea to speak to a mortgage broker to see what options are available to you based on your specific circumstances.
Hope this helps!
Cheers,
Sarah