Buying your first home is a very exciting but also daunting major life event. There are a whole number of factors to consider when making the purchase in terms of location, price and features of the property to name a few. Even before these alternatives are evaluated, the pros and cons of home ownership itself need to be considered to decide if property purchase will benefit the potential owner. It has been recently found that home ownership among young Australians is below that of the global average. millennials, or “Generation Y”, is a not-so clearly defined segment in terms of the birth years that it includes, but as a guide this group of people are currently between approximately 18 and 35 years old.
The main factor contributing to the delay in the purchase of homes by millennials can be attributed to the difficulty they are facing when attempting to save for a house deposit, as this is the biggest cost at the outset of buying a home. With property prices rising, the amount required to make a deposit on a home is also increasing. A large proportion of Australians have noted that they would have to earn a higher salary to be able to afford to put a deposit on a home.
In order to combat the difficulty of saving for a deposit themselves, many Australian millennials must rely on their parents to assist them, whether this be by providing them with cash to put towards the deposit, or using some of the equity on their own home loans. A large number of Gen Y’ers are also opting to move back into the family home to give them an opportunity to save for the deposit themselves, sacrificing their potential freedom and independence now for the future benefit of owning their very own home, a worthwhile trade-off in the eyes of many young Australians.
To make buying a more achievable reality, many first home buyers are resorting to purchasing smaller homes - townhouses, units or apartments - or properties in locations with fewer amenities and public transport, such as the outer suburbs. If you’re opting to purchase a more affordable property that isn’t exactly your dream home, there are ways to do your dream home renovation and stay within budget.
Lack of knowledge
Not only do buyers need to fork out the initial deposit, they also must consider the additional expenses such as mortgage insurance, stamp duty, legal and building inspection fees, and the costs of potential renovations. A lack of understanding of all the costs involved in purchasing and owning a home can also delay millennials’ big buy, as they may have assumptions about these that deter them or the whole process may seem too confusing and stressful, making the purchase unattractive. Leonie Fitzgerald, founder and property expert at Wealthology Australia agrees that beyond the deposit, the ongoing costs could be the problem and offers an alternative solution:
“Our experience with millennials not buying homes is because they simply cannot afford the mortgage repayment and associated costs when purchasing a home for themselves. However, when we work with our younger clients we introduce them to the concept of 'rentvesting' where they purchase an investment property and continue to rent themselves. The majority of the costs are covered by the tenant and the ATO and the individual gets to live in a home they can afford to rent in an area they like, but which they would be unable to buy for themselves. This also allows them to invest in other states, following the booming cycle to make the best from their investment.”
When buying their first home, many young people look to their parents for advice. If millennials could gain more access to easily understandable, relevant information about purchasing their first home, how to select a mortgage provider that suits their needs, and budgeting for this, this may encourage them to not delay this milestone. Being more informed about what to take into account before investing in property will serve first home buyers well when making the decision to purchase.
A booming real estate market is bound to attract potential investors, both domestic and from overseas. These investors are swooping in and buying properties with their more readily available funds while millennials are still trying to save for their deposits. Fingers have also been pointed at tax laws that puts investors in a more favourable position over individual buyers which makes gives them an advantage in affording to purchase property. Investors are also competing with first home buyers at auctions, where prices are going up and up.
Another factor affecting the tendency for millennials to be purchasing their home is the change in the Australian household structure and lifestyle over the years. Between the 1960s and today, the proportion of the people within the same age bracket as millennials who live with a significant other has fallen substantially. millennials are also getting married and having children later in life, choosing to stay at home for longer. This is delaying the purchase of property, as these life events are often common triggers of buying a first home.
Today, so many travel tour companies are successfully marketing their attractive packages to Gen Y with promises of offering them an experience of a lifetime at prices that are often fantastic value for money. When this is considered along with the increasingly popular lifestyle trend of minimalism whereby emphasis is placed on the value of experiences over possessions, it’s no wonder that young people are spending their hard earned cash on travelling overseas, very much moreso than any generation before them. The train of thought is that they may as well travel now while they have less commitments and are more physically able to cope with the jumping from place to place and exhaustion that comes with travelling, which delays the purchase of a home and other life events that are seen as a part of the “settling down” stage of life.
For many young Australians, student debts are an unfortunate reality that hangs above their heads, having to be repaid once their income is above the compulsory repayment threshold. These debt repayments are one of the contributors to students finding it difficult to save up for a house deposit, deferring their house purchase. When you do purchase your home, if you’re on a student budget but want to give your house a quick makeover, it can be as easy as updating your décor with paint.
When there are so many variables to consider when purchasing property, it can often seem like all the forces are against you making the leap into the property market. For helpful advice on purchasing your first home, you may find it helpful to contact a real estate professional!