There has been some commentary recently about a decline in housing affordability across Australia due to higher home loan interest rates, house price increases and reductions in the government’s first home owner benefits.
Housing affordability is a broad measure based on disposable income, median house prices and average home loan repayments. A drop in affordability doesn’t mean that you have to give up your dream to own your own house. With careful planning and good money management the dream of buying a home can still be a reality.
The first step towards buying a house is usually to start saving for a deposit to demonstrate a pattern of saving over a period of time. This is important for most lenders, as it shows you have discipline and will be able to manage home loan repayments. A deposit representing a proportion of the value of the property may be required and; this amount varies from lender to lender. Remember to be realistic for your first home – you can always renovate or upgrade later as your budget allows.
The key to saving for a deposit is to get started – the sooner you start working on a savings plan the sooner you will achieve your goal. Consider choosing an amount from your income that you can save regularly and have it automatically deducted from your pay and deposited into a separate account. Ideally, this amount should be at least equal to your expected home loan repayment minus any rent you currently pay. This will also give you a good indication of the amount of money you will have to live on once you have a home loan. It is also a good idea to allow an extra amount for possible increases in interest rates.
If you decide not to automatically deduct a set amount each payday it is important that you stick to your budget and put your savings away first and only spend what is left – not the other way around.
In addition to the deposit there are a number of associated costs with buying a property that you may need to factor into your savings plan. These expenses may include fees for legal services (conveyancing), building inspections, pest inspections, stamp duty, building insurance and title searches.
There will also be other property related costs which you would not ordinarily have to pay when you are renting such as council rates and connections of services for gas, water and electricity.
If you are a first home buyer you may be eligible for a benefit under the government’s First Home Owner Grant and First Home Plus Scheme. To find out more about these benefits talk to your lender or visit the relevant Office of State Revenue website in your state.
Good luck and happy saving!
Any advice contained in this material has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on any advice, you should consider the appropriateness of the advice having regard to your circumstances.
Michael Leach is the Head of Marketing at Newcastle Permanent Building Society Limited (http://www.newcastlepermanent.com.au) ABN 96 087 651 992.
Newcastle Permanent Building Society is a provider of home loans and mortgages
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