Housing Affordability in Australia - what first home buyers should do before entering the property market.

In this guide we will cover:

Simple steps for assessing the true cost  of your first home
How you can establish whether it is affordable, and what you can do to get into your own home sooner.
How you can build a bigger deposit, more quickly
Why you may be better off not buying property
How to create a compelling report to show your bank your ability to save and meet the mortgage repayments - using exact figures, not averages or guesses.
Introduce you to a simple software product that makes doing all of these calculations quick and easy.

The altered landscape of the Australian housing market

The issue of housing affordability in Australia now is very different to what it was six months ago. Since the end of 2007 we have seen interest rates rise, consumer confidence plummet, and global credit markets contract.

So what do these changes mean for first home buyers?

Well, for starters, it's not all doom and gloom.

These changes bring unique opportunities for first home buyers and potentially eliminate some of the barriers to entry that new home buyers were faced with this time last year.

Let's take a closer look. Since 2007:

• House prices have been falling, which means that there should be more property bargains to be found.
• Many property investors (and speculators) have been fleeing the market. This reduced competition should make it easier for many first home buyers to get their foot in the door
• Savings rates are at their highest in 12 years, making it easier to save a deposit.
• More incentives to help first home owners into their first homes and improve housing affordability are starting to become available.

Already Bought Your First Home?

Did you know that even small savings can make a massive difference to your finances?

Read this to discover just how little you need to save to eliminate $70,000 or more from your mortgage - and how easy it is to make these savings with our personal budgeting software.

Housing Affordability - Run the numbers before you do anything else!

The question of housing affordability is still crucial. Before you take any steps into the property market you should run the numbers and determine if you can truly afford to buy a home.

Can I afford it?

- How much am I willing to spend? to buy my first home

- How large a deposit do I need? (10 - 20% of property value)

- What are the other upfront costs? Additional to the property price... (stamp duty, legal, setup fees, insurance)

- How long will it take me to save my deposit + other costs?
  (We've included some mortgage deposit saving tips here)

- Can I afford the mortgage repayments?

- Can I still afford the mortgage repayments if interest rates rise?

What if I can't afford it?

Don't get disheartened, do something about it! You're not alone.

Pay down debt, build your deposit and take the same steps to get your finances in order that you would if you were preparing to buy your first home. You have nothing to lose from improving your financial position! Keep reading...

Before you enter into anything...

Step back and take a look at things logically.
Property is often an emotional decision that people don't work through logically - they buy a house because that's what they feel that they are expected to do - and then the new homeowners find themselves suffering from mortgage stress.

Don't rush into anything.

Take some time to think about why you want to buy property in the first place. It's not worth sacrificing everything just for the sake of home ownership and ending up miserable. There is more to life than servicing your mortgage. After all, it's typically a 25 - 30 year commitment.

It is important that you get this right. There are some free calculators on the Internet that may help you. Alternatively, Budgets Get Real can help you to run the figures and determine if you can afford the property that you want, and to build a deposit more quickly.

If you are serious about purchasing a property you will need to:

• Get a clear picture of your actual income
  Including after tax income, interest and other income.
• Keep an accurate record of your spending
  Including cash, to identify how much you have left over and where savings can be made.
• Create a Budget
  A mortgage is a significant expense that will quickly show you how important it is to have a good budget.
• Plan ahead
  Get an idea of how changes to your mortgage will impact on your cashflow.
• Our software makes this easy.

Renting VS Buying

The high cost of servicing a mortgage is one of the major issues regarding housing affordability. The truth of the matter is that you may be better off renting (and saving the amount that you would otherwise spend on mortgage repayments) than buying a property.

This is often an unpopular suggestion in Australia, where home ownership is often referred to as "the Australian Dream"... but it is an important option to consider. After all, Australian's are spending more on their mortgage repayments than ever before, and when you compare Australian house prices to Australian wages, property in Australia is currently amongst the most unaffordable in the world.1

One of the reasons that many people do well with property is that it forces then to put aside money that they may otherwise fritter away. If you have the ability to save a good portion of your income you may be better off using compound interest to your advantage and continuing to rent, or simply save a larger mortgage deposit.

Why are deposits important?

In the end, whether you choose to rent or buy, it pays to begin saving what you'd need for a deposit. Even if no deposit home loans stick around (which I doubt that they will for much longer), there are some very good reasons for why you should save at least 10% to 20% deposit for your first home.

Having a mortgage deposit will:

• Save you thousands of dollars on the total cost of your home
• Increase your chances of getting a loan
• Give you more purchasing power
• No / reduced mortgage insurance
• Immediately increase the equity in your new home

A Guide to Saving a Bigger Deposit

Top deposit building tips:

1. Pay Down Debt
Due to the nature of compound interest (and the interest rates involved), most debts will accumulate interest faster than the same money would in your savings account. Any extra money put towards your debts will reduce ongoing interest charges, and help pay off the total amount sooner.

Any outstanding debt will reduce your chances of getting a home loan, and reduce the amount that you can borrow for your first home.

2. Increase Your Savings
Tax returns, cash gifts and bonuses are all great ways to boost your savings. Look to create a regular savings plan, and automatically set aside part of your income as part of your saving plan.

3. Review Your Expenses & Create a Budget
If you're looking to make real savings, you will need to take a look at your spending.

Budgets Get Real can give you a clear picture of your current financial position - including all of your income and expenses - from which you can easily create a budget. Use your budget to boost your savings and demonstrate your ability to successfully save money and meet your mortgage repayments.

4. Invest
To grow your savings quickly you need to put them somewhere where they are earning money - either in a high interest savings account, a term deposit or a First Home Saver Account. These are all relatively safe ways to invest your money at a guaranteed rate of return. Each has their own advantages and disadvantages, so compare and choose whichever method you are most comfortable with.

Shares are another way to grow your deposit, and may provide a better return on investment. Shares can also be a more tax effective way to grow your deposit, depending on how you do it. But don't forget, with the promise of higher returns comes higher risk.

5. Find Some Extra Money
You might find the money that you need by reviewing your budget and expenses. But if you're still short, perhaps you can look to your parents for some help with buying your first home. If that's not an option, you may be able to earn some extra money with a casual job, or by selling some things that you no longer need.

With regular saving you will not only meet your deposit goals, but prove to yourself (and your bank) that you have what it takes to meet your mortgage obligations and own your own home.

One of the downsides from the recent changes is that finding the finance you need may be more difficult. The fact of the matter is that banks have less money to lend than before, so they're going to be more selective about who they lend it to.

It is not necessarily those with the larger incomes who will get the loans, but those who can demonstrate their commitment (and ability) to save and meet the mortgage repayments.

How to Create a Compelling Report to Show your Bank

That you have what it takes to save money and meet the loan repayments -
using exact figures, not averages or guesses.

Show them that you've run the figures

• How much you're looking to spend on your first home
• That you've budgeted for the mortgage repayments
• You know what you want to borrow and under what conditions you intend to pay it back.
• You've made allowances for increases in interest rates
• You have your exact income and expenses on hand, clearly showing how much you earn, how much you spend, and how much is left over.

Show them that you're committed

• Solid savings history (for at least 6 months)
• Demonstrate your ability to successfully budget to meet repayments
• You have reduced / eliminated other debt
• You have your mortgage deposit ready to go

When you apply for your loan these are the sort of details that you will need to provide.
The more organised you are, and the fact that you can verify all of your calculations greatly increases your chances of your loan application being successful. Financial institutions prefer to lend to customers whose finances are under control.

Showing them that you know exactly what is going on with your finances, and are well prepared, will set you apart from other mortgage applicants.

Don't forget that as a first home buyer you may be entitled to:

- The First Home Owners Grant ($7,000)

- Reduced or no stamp duty in your state

- Use of the new First Home Saver Accounts

A little bit about Budgets Get Real...

This software is an invaluable assistant for anyone looking to buy their first home.

It lets you see exactly what you are spending and where there is room for savings. Using this information you can build accurate budgets and reports to see how buying a property will impact on your finances, and how changes that you can make today will improve your finances in the future.

It does this all quickly, accurately and easily. If you ever need any help, feel free to send us an email, or use any of our extensive resources, including video help.

At only $97, Budgets Get Real is a cheap way to get your finances in order and get into your own home sooner. What's more, it comes with a full 60 Day Money Back Guarantee.

Try it out, and even if you choose to return the software, you will have a clear picture of your finances and what you can do to save - an invaluable first step for any first home buyer.

Warm regards,

Peter McConachie

 

P.S.  Taking control of your personal finances is simple with the right system.
Start by visualising how those extra savings will make a difference to your deposit. Budgets Get Real is great value for money, personal finance software. It will help you to manage your money even after you successfully purchase your first home.

P.P.S.  Budgets Get Real is covered by our 60 day Money Back Guarantee.
Even if you return the software you will clearly know the state of your personal finances and where you need to save. But best of all you will know where you can start saving for your first home in less than 60 minutes.

1. CHOICE article "Mortgage Stress: your alternatives", Jun 2008.

Our software runs on Mac & PC.

 

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You should obtain independent advice on any specific issues concerning you.
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