Six tips to help Gen Y buy their first property
Most Aussies love the idea of owning their own home but many see owning property as just a dream. The Australian Bureau of Statistics show that average house prices across our eight capital cities increased by 10.1% in the 2013/14 financial year. With the average price of properties across the country now sitting at $554,800, it might seem impossible for that group of Aussies generally dubbed ‘Gen Y’ to save enough to own their first humble abode.
Gen Y (those aged between 18 and 34) often have other ambitions besides saving for bricks and mortar, like completing professional training courses or travelling the world. So can Gen Y’ers tear their minds away from the lure of shiny but non-essential purchases and focus on saving for an asset that could set them up for life?
Here are six handy tips for how young Aussies can maximise their savings in order to boost their borrowing power, and buy their first home sooner rather than later. If you’re a Gen Y’er or know one, these tips are for you.
1. HOW MUCH MOOLA DO YOU NEED? DO THE RESEARCH & GET MOTIVATED.
Obviously, buying a home requires upfront costs and the big outlay is the deposit. Saving as much as possible for the deposit reduces the amount you need to borrow and therefore the interest paid. Many say that you should save at least 20% of the purchase price in order to avoid additional costs like Lenders Mortgage Insurance (LMI).
However, knowing what you can afford to buy and therefore how much you need to borrow is paramount. Do some research. Have a look at what houses are currently going for in areas you like. This might shock you so also look at the more affordable areas. This doesn’t mean you have to move to the outskirts of a city, but it does mean that you’ll have to work your way up the property ladder. Research house RP Data have identified Australia’s top 5 most affordable suburbs for houses and units within 10kms of Australia’s capital city centres, as at June 2014. Take a look at these below. Drive to some of these areas and look for places that have potential to go up in value.
2. KNOW YOUR BUDGET, VISUALLY
You can learn valuable skills in budgeting when it comes to saving for a house. Visual planning is helpful, and can help you realise how much is actually left for savings after all other expenses, like rent, bills and petrol costs, are taken out. Writing expenses down each week in a planner can help you visualise how far your income can stretch, and give you a better idea about what non-essential items you can afford to splurge on. It could be as simple as packing lunch for work each day, and cutting out that daily coffee purchase. Financial expert Maureen Jordan, from Switzer Financial Group and author of Finding and Managing your Mortgage, says you should track your spending for at least a three to six month period to give an accurate idea of your monthly spending patterns. Then you should trim areas of waste – we all know that we have them!
3. OPEN A SAVINGS ACCOUNT
Alas, the 2014-15 Budget abolished the first home savers account scheme – which included the government’s 17% contribution on the first $6,000 deposited every financial year – but you can still equip yourself with a high interest savings account from various institutions. Keeping an eye on interest rate specials, or fixed-interest rate term deposit accounts, could prove useful – but shop around.
4. CHANGE YOUR CURRENT LIVING ARRANGEMENTS
Can you afford the place you are renting in right now to reach your property goals? Sometimes rent can be a big limitation for potential first home buyers. Perhaps you could move back in with your folks, or with another family member, but if this isn’t appealing (and mightn’t be for someone who has just claimed their independence!) consider a share house instead of living with just one other person to reduce rent expenses. There are benefits too – living with more people might mean living in a house instead of an apartment (with a backyard!).
5. CREDIT CARDS – WHO NEEDS ‘EM?
Maureen Jordan also advocates reducing costs with a view to completely eliminating your consumer debt. Unnecessary credit cards (are they ever necessary?) should get the flick. Taking out a huge car loan might not be good idea for your financial health. Having these debts will also impact your borrowing power, so you might have to buy a more affordable car now, but you’ll be rewarded with a better house later.
6. USE THE TECHNOLOGY THAT WAS MADE JUST FOR YOU, GEN Y.
Gen Y is celebrated for being switched on tech users, and fortunately, there are many tech tools that first home buyers can use to educate themselves. Apps like Budget Tracker by Apple can help with budget maintenance, and then apps like Domain.com.au can be used when you are ready to shortlist properties, and schedule inspection times.