- June 22, 2020
- Posted by: Ding Financial
- Category: first home buyer loans
There is a lot of conflicting information circulating on news websites and media outlets about the current state of Australia’s major cities housing cycle. Is there a bubble? Will interest rates go up? Which suburbs are experiencing the highest price growth and development rates? While all of these questions are valid and relevant in deciding to buy (or sell), it has been somewhat neglected at what age people should start taking home ownership/renting seriously, and a lot of this has to do with financial maturity and control.
Despite there being no ‘one size fits all’ formula (or formula at all for that matter) that individuals and couples can follow to ensure homeownership (whether through a mortgage or renting), there are a plethora of ways that people can save and pool the money needed to start the journey. However, what AGE should you be starting at – 20, 30, 35, 40…70? While no one should feel pressured to commit to such a substantial financial decision, it must be said that people should take property seriously AS SOON AS THEY CAN. Different age groups should adopt different starting places and strategies to save for a deposit/pay off a mortgage.
It would be foolish to deny the power and necessity of scheduling as a precursor to achieving one’s goals. Before anyone can make such a significant decision, you must genuinely ask whether ‘is homeownership born out of necessity or convenience?’ and ‘is it possible to schedule a date when everything must be financially sorted?’. For most, home ownership is done as part of the ‘adulting’ stage of life – when our resilience to stress and failure is at its highest. Besides, scheduling is important because it creates urgency and drives individuals to achieve their savings’ goals. At least when you have a number to work towards, the progress can be quantified and tabulated.
Now into some age-appropriate methods of home deposit saving:
For the youngsters/DINKs: Take on debt that you can repay, and establish a good credit score. The last thing you want when you are looking to start saving for a home is having to owe money to an institution, but some purchases may require borrowings but don’t get too carried away. Put things into perspective – is it better to start saving now, or later down the track when you need to capital to utilise? Unfortunately, to get ahead of 90% of your demographic, you will need to make some difficult lifestyle changes, and a prominent place to start is recreational spending.
Coffee example: $5 coffee a day → $1825/year → ~3% of Australia’s median before-tax income.
For the young family: Commit to your decisions. If you have decided to take out a mortgage or a second mortgage, be prepared for those repayments to continue while you raise a family. While no one said it would be easy, you have every excuse in the world to make sure you end up on the right side of the equation. Although risk-taking is a necessary part of home-ownership, the acceptability of risk changes when you have a family – it is more important to have a roof over your head rather than go on an expensive holiday or buying an expensive car (a costly asset purchase). Hence, it is vital for young families to stick within their means, and not get too confident when making large purchases/investments.
For the bank of Mum and Dad (i.e. the grandparents, the Reserve’s of the family): Hopefully, by the time everyone is starting to leave the nest, your own home would have been paid off, and now comes the time for the baton to be passed on and the cycle to start again. For most Gen Y and Millennial homebuyers, the bank of Mum and Dad is the first stage of approval that needs to be passed, and with that comes the responsibility/potential of going, guarantor. As common as it is, it is also just as risky, hence comes the dilemma of supporting your children, or keeping your own home.
In conclusion, the earlier you start saving for a home, the better. While there is an undying mantra that Millennials will be perpetual renters, the steps needed to get to home ownership all start with financial discipline and planning. With everyone being at different stages of the lifecycle of home buying, it only makes sense that you approach the mutual goal with your interests at heart. Therefore, (1) develop good saving habits and patterns while you are young and can afford to, (2) decide when you will want to pull the trigger and put in the closing bid, (3) commit to your repayments, and (4) don’t be afraid to ask for help from your parents (and parents, be comfortable with your own situation before lending money). Now prove the property gurus and economists wrong.