Young Australians could buy their first home much earlier than anticipated.

Buying my first home in Brisbane has given me a new perspective on the possibility of homeownership for young people in Australia.

As Covid-19 takes hold once more in Australia and cities and workspaces are sent back into lockdowns albeit often self-imposed this time, I find myself reflecting. I am so extremely lucky to have my own apartment with a bedroom a bathroom and a well-appointed study for working from home.

My 56 square meter block of concrete is one of a group of 6 units built in 1973 and after some TLC and renovations are now modernised and by far better than anything I have ever rented (although I do wish we had room for a bath). It is also something that I really didn’t imagine I would be in the position to own until at least my 30’s.

While the market is at an all-time high and with home ownership on the decline, many of my friends are in a position where renting seems inevitable and home ownership remains a fairy-tale. I am not going to come out and say that you should ignore the warnings and that buying a home is for everyone and it’s easy if you just follow my three tips. However, it is possible and for many people today, you might be in a very solid position without knowing it, especially after the last two years of forced savings.

If buying your first home and leaving crappy landlords behind interests you then there are a few key points to address to access a home loan. If you tick off all these things then your next step is to speak to a broker about what your options are, and they can help you out by doing the initial calculations of what you can afford, how much you can borrow, what your maximum purchase price is and what area you can look in.

Most mortgage brokers do not charge anything to their clients as they are paid commissions from banks, and are looking to satisfy the bank’s major questions. The following is the exact information that enabled me to actively look and ultimately buy my first home.

Three qualifications banks are looking to tick off.

1 – First and foremost (to me), although others may have them in a different order, is, are you in a position in your life where you want to settle down? Really what you need to ask yourself is, are you properly willing to commit yourself to a long-term home loan? Because backing out of the loan and selling your property, whilst possible, could end up costing a significant amount of money. The time frame for this varies due to your own personal circumstances, but in my case, I have committed to staying in my unit as my primary place of residence for at least 4 years.  I still plan on holding on to the property after that, but I dream about renting out my home and moving to Japan to become a snowboarding instructor.  

2 – Secondly, and most importantly from the bank’s perspective, is to do with serviceability. This is, in layman’s terms the ability of you, the borrowers to meet all your commitments, expenses, and expected loan repayments based on your income. This is a specific calculation that varies significantly from bank to bank and is impacted heavily by being either single, a couple, or having dependants. Due to the current low-interest rates on loans and following some recent changes in lending policies, the servicing calculations have become more lenient so if you are employed and are currently able to meet rental repayments and living expenses comfortably then you are probably passing this hurdle. You can also jump onto most of the major bank’s websites and do a quick servicing calculator to get an idea of how much you can borrow, although a broker will be able to be much more detailed and specific.

3 – The last consideration is one that regularly garners press coverage for being hard to achieve for young people. With raising house prices across Australia, the typical deposit of 20% for purchases seems unachievable for many. However, this barrier is often one that is possible to circumvent and in the current market these measures are becoming more prevalent. Ultimately if you have a 5% deposit saved up then this is the non-negotiable minimum that banks require for most loans. There are two common methods to get around this 20% deposit problem the first is to use an equity guarantor and the second is to take advantage of the bank’s Lender’s mortgage insurance (LMI). Ultimately this will cost money but depending on the industry you work in you may qualify for an LMI waiver. There are also several government concessions and programs that regularly pop up and your broker will be able to provide up-to-date information about what is available.

The takeaway is that if you are in a stable life position and have a steady job then you could be in a much stronger position to access a loan and therefore buy your first property sooner than you think. It is worth reaching out to someone in the know even if it is just for a chat to get an idea of what your options are.

If needed you can also plan with your broker for strategies on what is needed now to be in a position to buy in the near future.