Beating the affordability blues
First-home buyers must think more creatively if they want to enter the property market, say Mark Armstrong and David Johnston.
It seems that barely a week goes by without another gloomy statistic confirming how hard it is to enter the property market.
The latest analysis from the HIA and Commonwealth Bank shows that affordability for first-home buyers fell a dizzying 10.3 per cent in the 12 months to March this year.
It’s no good simply hoping that the situation will improve because it probably won’t. If anything, 2007 marks the start of a new property cycle in which prices will begin to increase after a lull of several years.
So what can you do about it? Here are three ways to think more creatively about your first home and get into the market sooner.
1. Location first; property second. As much as it hurts to take off those rose-coloured glasses, the fact is that your first property doesn’t have to be your dream home. Just as it will take many years to build your career experience and nail that dream job, so it will take a long time to build enough equity to buy your dream home.
Your first home can be a vital springboard towards achieving that goal. The trick is to buy in a location where property values are growing at the same rate as the location you ultimately want to live in.
2. Live at home and rent it out. If you’re living with your parents and paying little or no board or rent, it’s worth considering buying your first property as an investment, rather than a home to live in.
3. Pool your resources. These days, more first-home buyers are beating the affordability blues by joining forces with family members. Lenders are offering family equity loans, enabling parents to access the equity in their homes and help their children to raise a deposit. If you take out this kind of loan, your parents will be guarantors and therefore financially liable if you can’t make the repayments, so it’s important that they understand their obligations.
Clubbing together with friends and lodging a joint loan application could also increase the amount you can borrow and make it easier to get into the market. If you buy with friends, make sure you think ahead about what you will do if someone wants to sell their share.
No matter what route you take to enter the property market, it’s worth remembering one thing. To maximise your equity, it’s best to hold the property for the full duration of a property cycle, or around seven to 10 years.
For the full report, please visit www.theage.com.au
Source: The Age
