How to break into the property market (despite sky high prices)
It’s a hotly debated issue that polarises many and while it’s clear that the government needs to take a broader approach when addressing housing affordability, there’s no “one size fits all” solution.
Despite the Reserve Bank keeping the cash rate at 1.5% for May 2017, which was predicted by all 34 experts and economists on the finder.com.au RBA panel, property prices are still inflated in many capital city markets. With inflated prices comes disgruntled first home buyers who spend on average 3.7 years mustering up the funds for a deposit.
In the upcoming Budget, it’s expected that housing affordability will be a major topic of discussion, but many are still undecided about the best way to tackle this issue head-on.
So what measures can be introduced to balance the property market and make housing more accessible to first home buyers?
We put it to the experts and economists in our finder.com.au RBA survey and discovered that the overwhelming majority (97%) think that creating more housing supply would rectify the issue. In second place was getting rid of or reducing negative gearing (37%) followed by removing or reducing the stamp duty tax (27%).
Depending on the outcome of the Budget, some measures may be adjusted or introduced to make things a little easier for first home buyers. But during the interim, here are some ways you can get a foothold on the property ladder sooner.
- Apply for pre-approval
If you get pre-approval, the bank will agree to give you a specific amount to borrow (after reviewing your financial position). This gives you an edge when applying for different home loans because it shows the lender that you’re a “serious” borrower and that you’re in a sound position to service a mortgage.
- Forecast your costs (and budget)
Initially, you’ll need to identify your property price range and from this, you’ll need to work out how much you need to borrow for a loan. You can use online calculators or speak to a mortgage broker to forecast your borrowing capacity and the amount that you’ll need to save for a deposit. However, your costs will extend far beyond this.
From stamp duty to inspection costs to mortgage establishment fees and your ongoing repayments, you need to nut out the full range of upfront and ongoing costs that you’ll need to manage once you’ve taken out a loan.
Draw up a budget for each of these costs and remember to include a 2-3% buffer to account for interest rate rises (and more expensive repayments).
You’ll then need to come up with a plan of attack to save as much as you can to meet these costs. Whether it’s putting your funds in a high-interest savings account, cutting back on non-essential costs such as travel or entertainment or consolidating your personal debt, there are many ways you can be smart about saving for your mortgage and property-related costs.
- Think of creative ways to save
If you’re serious about getting onto the property ladder, you’ll need to make some sacrifices in order to save for a deposit and the ongoing costs of owning a property. This means making adjustments to your current spending habits.
Whether it’s negotiating a better deal on your electricity bill, renting out a spare room in your property for some extra cash, selling your vehicle or working a couple of extra shifts per week, there are several ways you can be resourceful when it comes to saving more.
- Scale back on credit
Having multiple credit cards and loans can signal to lenders that you’re not a responsible borrower, so if this is the case, work to reduce the amount of credit that you owe. This could mean cutting up a credit card, resisting the temptation to increase your credit card limit or carrying out a balance transfer.
Scaling back on your credit will put you in a stronger position to apply for a mortgage as it will demonstrate that you’re capable of servicing and managing debt.
Coming up with a roadmap to get into the property market can be both exciting and challenging, but as long as you’re committed to the cause, you’ll be on your way to becoming a proud homeowner in no time.