Addressing the financial obstacles experienced by first home buyers
Trying to get onto the property ladder seems to become a much tougher challenge for every generation. We hear complaints about property prices spiraling out of control so much that it is to the point where people cannot afford to place a deposit on their home. There are affordable options from developers that offer house and land packages in Melbourne. In Sydney, property price estimates in 2015 are creeping into the millions of dollars. This means if you are a first home owner, you will need to save upwards of one hundred thousand dollars to give yourself a shot at getting onto the property ladder. There are quite a few obstacles for the ambitious homeowner. We take a look at some of the common obstacles facing first time homebuyers.
The property bubble
Every few years, there is a real estate bubble, which sends the prices of properties into the stratosphere. The prices are fueled by the economics of supply and demand, but transcend that when speculation comes into play. This is what causes the economic bubble where people are spending on speculative value until the point where there are no more buyers that are willing to pay those prices. At that point, the property prices drop considerably and it becomes a buyers market. The Australian real estate market seems like it is entering another era where there will be a real estate bubble, making it more difficult for first time home buyers to gain entry into the property market.
Getting a loan
The application process to get the loan is a challenge. Initially, the homebuyers need to find out if they are eligible to qualify for a loan. And if so, what type of loan will they be able to acquire? The ideal scenario is that the homeowners will be able to acquire a loan with as little money (deposit) as possible. In that way, they can use financial leverage (or credit) to secure the property and pay back the financial lender over the life of the loan.
Saving for a deposit (the cost of living)
With the ongoing financial demands and the cost of living rising through inflation, it makes it difficult to save up for a deposit on a home. Even if someone is able to get a good job and makes a great income, the costs to maintain your lifestyle may hinder your chances when it comes to saving.
Government or agency incentives with bursary or grants
In Queensland, the government had been offering a first homeowners grant of $10,000 or more to go towards the purchase of their new property. Over ten years ago, this definitely made a difference as the property prices weren’t too high. However, there are more challenges nowadays as the property prices and fees around the management of the property have increased in price.
The need for creative financing strategies
The dream of purchasing your home outright seems to be more of a fantasy nowadays. With deposit and loan sizes growing, it is often better to split the risk in order to gain access to a more sizeable loan. This includes:
- Sharing the mortgage agreement with your spouse or partner
- Splitting the mortgage agreement with friends, family or other property investors.
- Leveraging property equity from an existing property asset as security on your new home.
- Leveraging other assets as a form of security deposit for your property (subject to the lender’s qualifications)
Getting onto the property ladder nowadays is more difficult than it used to be. Even though it may seem dire, there are companies, government organisations and property developers that are willing to give you a helping hand for you to get and own your own dream home.