As a partnered, average-wage earner, we are looking to start a family – and would like to buy a house before doing so.
I've just started looking, and it seems we would both need to work for 30+years to buy a tiny flat in greater-Melbourne (or a small house in suburbia), and the repayments would mean we would be living off less than the pension for those 30+years. Not a great outlook for our future. A lot of people I know my age (20-30s) are in this position.
I've considered moving to a regional area, but haven't found the market a lot better without going totally rural. Factoring in limited work opportunities, and our lives/friends/family being in Melbourne, this doesn't seem realistic. The sort of repayments we'd need to make seem impossible to maintain – especially when considering children.
Is anyone else here in a similar situation? Or is anyone able to offer general, positive advice for me? Our future feels pretty bleak right now – we'd move overseas, if only we could work legally.
Hi Wynyard
There are a lot of Australians in your position, i.e. unable to get the deposit together that traditional lenders require.
There are some properties on the market that are being sold with Seller Financing. These properties usually require quite low deposits, with the trade off being you pay a premium price.
I guess only you and your family can decide if it's worth paying a premium price, to get into the market and into your own home now, as against waitng longer to save the necessary deposit that traditional lenders require.
I think the site that advertises the most properties for sale with Seller Financing (Vendor Financing) is:
http://www.renttoownhome.com.au
I advertise there but otherwise have no connection with the site.Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
If you are prepared to give up some of the potential capital growth a shared equity scheme could be an option.
Max lvr is 90% so you would to have a deposit but we are starting to see more and more of these loans evolve.
You might take out a 90% lvr and you make repayments on say 70% with 20% being interest and repayment free.
The lender then takes 40% of the capital growth.Either a way of buying what you want and reducing your repayments or being able to set you repayment and affording something in a higher price bracket than you expected.
Richard Taylor | Australia's leading private lender
Hi Wynyard
You sound like one of the typical whingers out there who are not prepared to make some sacrifices now to get ahead. Any whinge to keep renting.
"and the repayments would mean we would be living off less than the pension for those 30+years. "
Your logic is stupid. Genious, your wage does not remain constant (it goes up), and your mortgage goes down over time (so with more money, you pay less mortgage). But keep renting my friend. Cause the prices are just "too high", and you have to live poor for 30+yrs. Haha, you fool.Medium wage 1980 $250/wk $13000/yr
Medium wage 1991 $592/wk $30700/yr
Medium wage 2006 $1058/wk $55000/yr
Medium wage 2010 $1288/wk $67000/yrMedium wage 2020-2025 ~2000/wk $100000/yr etc
Thanks for all your responses, I'll seriously explore all the advice. I have managed to save $20K and hope this will get me started. I'm thinking of either investing in an overseas property, or if I can, buying a home in Australia. We are saving to try and reach $40K but this will take some time. If I can, I'd rather stop paying rent now.
Investor888, thanks for the harsh critique. I can appreciate a kick up the backside if it will bring new light, and I hope to be proven wrong – that is why I am posting here. Personally, I don't believe the medium wage stats census provides. Most people are aware that these stats are skewed by some excessively high wages, and an uneven distribution of wealth. I believe many people still earn $40 -<$50K and consider this medium wage.
I am currently on $25K and studying. I am thinking of dropping uni so I can earn more, and not have to repay HECS. I never had plans to buy a house before. This wasn't a problem, as rent was previously so cheap and I had no plans for family. Now that rent has gone through the roof, I feel a lot of pressure to find a stable way of life, as a new phase begins.
No problem. You have to look at the bigger/longer term picture. Don't look at your current repayments lasting the full 30yrs. Your income goes up, the mortgage goes down.
"I am currently on $25K and studying. I am thinking of dropping uni so I can earn more, and not have to repay HECS."
While I agree uni is a waste of time (just a piece of paper), unfortunately employers don't look at it this way. Unless your gonna be a tradie, your better to have the degree in the long run. It adds to your income later.
I thought the degree was a waste of time, but I am now on $110K base + super (8yrs in industry). It does open doors to the corporates you might not otherwise be able to get into.You get out what you put in. I don't buy into the rich getting richer, poor getting poorer, wow poor me CR#P. Many "below average wage people" go home and watch reality TV rubbish on TV. Most higher income earners are lifelong learners. We learn what the industry needs, and so get payed accordingly.
The other problem is that all the 20-30's want the kind of property it took their parents 15-20yrs to upgrade into, but immediately. Start small, and upgrade. What's wrong with a 2br unit for $200-210K. You can't complain if your fussy mate!!. The kids are OK in unit when younger (just look at most of Asia and Europe).
Look, we are on a combined income of $215K. We live in a one bedroom unit in city, but have investment properties. No, but we are just greedy landlord. Stop complaining and aim for something more in your budget, rather than "the perfect" home. Upgrade later. That's the way previous generations did it. I'm sick of all the Gen Y's whinging.
Christ, why are you complaining. With your $20K, your already have a 10% deposit for a 2br in the middle of Melbourne.
http://www.domain.com.au/Property/For-Sale/Apartment/VIC/Carlton/?adid=2008463438
Whinge, whinge, wow poor me!Sorry for being harsh, but it's usually those that want the perfect house that can NEVER get into the market.
Investor 888, very blunt… but accurate.
As a 20 something myself, I know how hard it is starting out…. Not having 'equity' to play with in an existing house really prices you out of much of the market…. But not as much as you might think.
You do have a lot of options available, but it's what you're willing to trade off to do it. As the saying goes, "Nothing ventured, nothing gained."
So you can't have that 500k 4 bedroom mcmansion with the media room and the pool in the new estate down the road…. honesty, few of us can. but why????
Because nothing you can do to juggle your existing situation short of getting a better paying job, finding other cashflow, or winning the lotto, or coming into inheritance will help you afford the repayments or bring the price down….
But there are sooooo many other things you CAN do!
Subdivision, for example, has been very profitable for many users on this forum…. And you don't even need to live in the same state as your project to do it!
Can't afford to do it yourself??? neither can a lot of people….. Herein lay an opportunity to find other like minded and similarly cash flow challenged people (that you trust) to partner up.
But as with all things, developments have an associated risk that you must be comfortable to wear… figuring out what the risk is, and how much you are comfortable with, is entirely up to you.
If the level of risk associated with developments and subdivisions is not for you, or you can't find someone else to partner up, then you are looking at what you can do with your first home to make it more affordable.
You could look for a smaller place than you may initially have wanted… Maybe an older place that needs work, and bring it back over time to increase its value… You could look at moving away…. Or you can look at how you can improve your weekly cashflow while living in a bigger place you do want. For example, you could buy the 3 bed place next door to the 5 bed mcmansion, and get a couple of boarders in to help pay the mortgage.
These solutions are not for everyone. I myself have lived with others before, and hated it… I have a partner with 0 risk appetite, so developments are out. But I do live in an older place, needing work, 35km from my day job. I can chip away at it every weekend for the next few years, and feel comfortable that I am already doing something about my future.
You mentioned that moving to regional was not your thing, but I think it can be a realistic option.
I just purchased 2 properties in a regional town (population approx 7,500), about 45mins to Ballarat and Bendigo (both under 100K each). I've travelled longer than that to work "within" Melb so I personally wouldn't mind the drive.
Good for a first home and much cheaper than any rent you'd pay in the big smoke.
Hi all,
Great strategies guys!
I would ask the following questions…really ask them,
Do you have to live in the city? Why? No really why? Especially if you are planning on a family.
Can you live further out? There are great houses (when I say great I mean size) commutable distance (anything around the 40-60 mins rail) for around the $400k mark both sides of the city.
How bad do you want it? Will you sacrifice things, outings, lifestyle? (when you have a family these things will slip away anyway
and you probably wont mind)Are you prepared to live in something smaller or dumpy to get a leg up? If not, why not?
How expensive is moving overseas as compared to staying…..? I would have thought that the $20 odd k you have saved would be gone pretty quickly after reestablishing yourself overseas then you would be in the same position.
Don't get down, just get moving. Maybe you could take your money and try and make more out of it? Good strategies above. There are still options out there, there are just a lot of people who would like those options to be super easy. Nothing is free. Even if you lived in an island paradise you would still have to go and get the coconuts!
Good luck try to stay positive!
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeWynyard wrote:I've just started looking, and it seems we would both need to work for 30+years to buy a tiny flat in greater-MelbourneIs anyone else here in a similar situation?
Sadly this is another one of the negative affects of the property bubble.
Most households need both adults working to afford even the most basic home.
It used to be achieveable on single income.
My advice is rent (it makes more economic sense) and wait for this bubbles inevitable pop!
yes in the old days you used to be able to afford a house on one salary… and there was usually one car, no mobiles, no pay tv, no gyms, old furniture, no air conditioning (when i was growing up we use to go and sleep outside on the lawn on hot nights and this is the 80s not the 60s), no cafe lifestyle and lots of other things i don't remember having that we do now… so lose all of those things and who knows how much more you could afford on one salary…
during the late 90s i also worked full time and studied a degree at nights and on weekends (which meant it took 5 years instead of 3) so i could earn a full time wage, when probably the norm was for students still to be living at home and enjoying the uni lifestyle at the tavern and other friends were out partying at nights or sitting on the couch watchign tv or playing playstation… now there are usually lots of options for studying online where u don't even need to turn up at uni from like 5.30-8.30 at night after a full day at work…
i wouldn't necessarily quit uni as educating yoruself can be one of the best investments you can make… i am now on a pretty decent wage at 37, not into 6 figures yet but i'm getting there and i manage even paying child support… i don't go splurging every weekend on things… i was renting and it was eating up lots of money making it difficult to get a deposit so i moved in with a friend (after taking a 6 week holiday around Europe) and am now saving up like $1200-1500 a fortnight and so have saved up my $20k deposit in a bit over 5 months or so with a bit of cashed in long service leave etc…. the scheme i'm going through means i will only have to pay $50 a week while it is being built rather than having to pay the loan straight away and rent making it much more affordable… do i prefer to live on my own? Yes. Do a few sacrficies have to be made if you really want something? Yes. Is it unbearable? No and will be forgotten pretty soon anyway… I am hopefully about to build now but might even stay living with mate for 12-18 months and rent it out and get a few tenants in, might give a real kickstart to paying down a bit of debt?? not sure yet…
Moving overseas… why would you choose that route before finding somewhere else in Australia? I live in Perth, yes the market has been in the doldrums slightly a little here after being off the charts for the last 6-8 years…. The state's mining industry will continue to boom if China stays half decent and we do have lots of industries crying out for workers over here… The place i will hopefully get my loan approved to build in the next week or so will be a 4 bed/2 bath for $300k after my deposit… hopefully be able to finance eventually with an interest only loan for about $900-1000 or so a fortnight with a 100% offset account to pay extra into which isn't that much more than i was paying in rent 6 months ago… its right next to the freeway south which any time other than peak hour will alllow me to be in the city in 30 minutes and to shopping centres, golf courses and beach in all considerably less time…. perth isn't melbourne, but we are better than plenty of other places round the world, always happy to get back here after my overseas trips…
so anyway there are some ideas about keeping your education going, find places where job growth should occur or remain strong, build up your salary over the years while hopefully your loan repayments will stay pretty static (won't be in the poor house for 30 years) and find cities that aren't mega size and so out on the fringes doesn't mean out in the sticks with a hour and half commute either way…
Yeah, Perth, the great thing is everything is 20 mins away!
There is always moving interstate!D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeThanks for all your additional comments and advice. I'll probably be looking at units or regional if need be (we want to go coastal eventually, but don't want to be too isolated while having our first child). There's a bit to process here, and I'll get to responding to some more questions soon. Just quickly, I talked with CBA again today, and here some rough figures I thought were of interest:
Loan of $350,000 over 30 years @ 6.86% variableMonthly repayments of $2,414 (Total cost: $868,760)
OR
Weekly repayments of $604 (Total of $732,701 overt 23.5years)
I was pretty amazed how much you save by paying weekly, by bringing down the daily compound interest. Are there any other really simple things like this that can make a real impact to overall costs?
Ooh yeah, the mortgage is definately a sting you would prefer to do without in the early years… But do the same calculation on rent increasing at a rate of 3% per year. You will find yourself paying about the same amount over the same time… difference is, how much will the house you own be worth at the end of it? And how much do you save in your retirement?
The other thing to consider, is whether you are better off taking on a house at the top of your borrowing capacity, or one that you could breeze in… I take repayments I can make easily for several personal reasons.
1. What happens if my partner gets knocked up and pops out a kitten??? My bank account would say Meouch.
2. Extra repayments. The more of those you make (particularly in the early years) the less interest you pay overall.
3. Spare cash for renos. Particularly when buying older places, you're going to need it or work on the house will go nowhere (particularly for things you can't/don't want to do yourself).So in answer to your question above, extra repayments can reeeeeally bring down the interest over time. The calculator I used with the info you provided threw out some different numbers… but making 10% extra repayments (about $60/week from your figures above) from day 1 made a saving of near 150k, and took about 7 years off the mortgage…
Offset accounts and whatever fancy bank things people use do similar things on a 'day to day' basis… I am not expert at such things, but from what I understand, the cash you leave sitting in your offset account each day (when your pay hits the account or whatever) reduces comes off the balance of the mortgage for interest calculation purposes… but you still have access to the money to do with as you choose, and can even have cards linked to the account for your weekly shopping etc.
Having said that, there are sometimes more profitable things you can do with your cash that outweigh the benefits of putting the cash on your house up-front. i.e. if you can deposit 10k on your house in a year for extra repayments, but came across an opportunity to turn that 10k into 30k from a subdivision, flip, or other project then you would need to consider your options and risks very carefully.
Yeah, my understanding with the offset account is that it works best if instead of 'paying in' extra each week you get your whole wage paid straight into it and so every dollar you have is sitting in there reducing the calculated interest you owe and then you 'pay out' your bills throughout the fortnight…. but just having your money sitting in there the whole fortnight is reducing interest majorly over the life of the loan if its calculated daily…
the next potential tool is (while requiring some financial discipline) to you use credit cards to purchase things like fuel and groceries and all and just pay them off in full every 55 days or when ever the interest free period is on your card which again should leave a couple of hundred extra dollars sitting in your account reducing the interest calculations… just don't let the cards go over the interest free period obviosuly…
As Grimnar says its always worth checking out what other options are out there for your money to work for you, but if you not going to be taking them, just using the money u have wisely can help you out a lot…
Wow – this is really great advice, thank you!
So much to learn.
Any other simple things that banks won't tell you, things that could save some money on loans/repayments?
hi Wynyard,
As mentioned above there are options and regional areas do not have to be tiny little towns with no employment prospects. i live in a regional town of 25,000+ I bought a three bedroom, two bathroom double garage house that was only 8 years old for $270K and there are other similair properties around a similair price still available. I am an 'average' wage earner earniing just over $50K. i am a single mum supporting three chidlren under 11years with no payments from their father. Since buying my home i have gone on to buy three three bedroom houses and two 2bed flats in the last three years. You can do it, but as has been mentioned above you may have to 'give up' some luxuries. I am lucky in that i don't drink or smoke and hate coffee so going without a latte is not an issue for me. My children and i have discovered camping and have had some great holidays where we spend less than $300 on a week's accommodation and food staying on the coast as well as inland.
There are many job opportunities in the country areas, i have not been out of work since i relocated after my divorce. There are many larger regional towns, you may be able to continue your university studies whilst living in one of these towns.
instead of looking at why you can't afford a home look at how you can.
Think positive and outside of the square. you may be pleasantly surprised with what you find
about offset accounts, most of these will have a monthly fee anywhere from $8-$15 . so it may be necessary to have a minimun of $3000 upwards at all times to make the interest offset larger than the fees.
I got a FHSA for me and the missus. Guaranteed way to turn 50k into 80k over 4 FYs, which is pretty good returns for a safe bet. Catch is it has to be used on housing or super in Aus.
If property does correct, it gives me a solid 30% deposit.
If property doesn't correct and stagnates, its still a 15-25% deposit depending where I buy.
If property continues to boom like it has in recent memory, then I increase my super funds or still have miimum deposit to buy something I know is overpriced if i decide to.
My gut is that by the time 4 years is up, Mrs ummester and I will be in a much better purchasing position than most punters in the country. I don't think the GFC is over or that Australia is immune to its effects (or China for that matter). Compound this with boomer retirements and Australian property is going to get increasingly hard to move over the next decade.
and you probably wont mind)
There is always moving interstate!
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