Pandemic is making it even harder for first-home buyers to raise their deposits
Australians’ wages have taken a battering from the coronavirus, forcing would-be first home buyers to save even longer before realising their Australian dream.
New research from consumer comparison site Mozo found young Australians will be forced to save for an extra six months to 1.2 years before they can afford to put a deposit on a standard starter home, depending on where they live.
“The great Australian dream has been out of reach for millennials for going on a decade,” Mozo consumer advocate Tom Godfrey told The New Daily.
“Now a bit over half the millennials we surveyed had a 20 per cent reduction in their income.”
Although falling house prices may offset some of those losses, many Australians under the age of 34 must now scrounge together a deposit on noticeably lower incomes.
Mozo’s research focused on the length of time a couple saving 20 per cent of their city’s average income would need to put money aside in order to save a 20 per cent deposit on the average beginner home in their city.
For single Australians, a group typically less likely to buy property than their partnered peers, these time periods will increase drastically, Mr Godfrey added.
“It’s more bad news for Millennials and that great Australian dream is still a little way off,” he said.
“You really are going to have to work exceptionally hard to crack the housing market.”
Tips for buyers
Even under these more trying circumstances, good homes are still within young buyers’ grasps.
But Anna Porter, director of property advisory firm Suburbanite, said buyers may need to adjust their expectations.
Ms Porter said that, in the current market, first-home buyers should be looking to buy:
- Properties in need of renovations or work
- Cheaper properties than they expected to buy
- Properties further out from the city than they initially planned.
“Moving further out from the city is getting easier now that everyone can work from home, too,” she added.
And by looking for properties well within their budget, buyers should have more success with their home loan applications, in what is becoming an increasingly difficult lending environment.
Cheaper rates outside the major banks
Australia’s cash rate has stagnated at a historically low 0.25 per cent.
That’s bad news for savers, but great news for home buyers looking for affordable mortgages, with most lenders offering mortgages below 3 per cent.
Even so, both Mr Godfrey and Ms Porter noted that a little research may be required to find the best possible rate available.
And, in many cases, Mr Godfrey added, those rates might not be offered by Australia’s big four banks.
Australia has a wealth of smaller lenders, including many non-bank lenders, that often offer more affordable mortgages.
Unfortunately, many borrowers avoid these lenders because they are unfamiliar with the brands and aren’t willing to take a risk with such a significant financial product.
But RateCity research director Sally Tindall told The New Daily these lenders are every bit as safe as their name-brand counterparts.
“Home loan lenders are governed by the National Consumer Protection Act 2009, which means they have to provide you with a certain level of information before you sign up, and properly assess your ability to repay the loan,” she said.
When it comes to home loans, it can help to remember that they’re the ones lending you the money, not the other way around.
“If the lender went belly up, one of the more likely scenarios is that the lender’s home loan book is bought out by a larger bank, and in that case, your mortgage would probably transfer across.”
Borrowers should be prepared to deal with their lender exclusively online or over the phone, however, as many smaller operators don’t have physical branches.
Ms Tindall recommended prospective borrowers test out potential lenders’ call centres before committing to anything, to make sure they are comfortable dealing with them in future.
“Bottom line: You have to trust your home loan provider, so make sure you are comfortable with the decision you make,” she said.
“If you fundamentally find comfort in the idea of walking into a branch to talk to someone face-to-face, then a smaller lender might not be for you.”