Four Ways You Might Be Sabotaging Your Chances at Home Ownership
Wednesday, December 17, 2014
You’re pining for a weekend spent painting the walls of your bedroom a shocking shade of red, and you can already picture yourself relaxing on your new back patio, reading a book after a lazy BBQ brunch.
But any dreams you have of buying your own home (or investing in a property) may seem thoroughly unrealistic, because squirreling away enough funds to use as a deposit appears all too difficult.
However, there is hope. For many Australians, home ownership isn’t completely out of reach – it’s merely hidden. And by navigating a few key challenges, you can edge closer towards owning your own home.
Possible Sabotage #1: Not having the discipline to save a deposit
The average Australian house price is around $563,000, according to the Australian Bureau of Statistics. Using this figure as an average, we can see that Australians need roughly $50,000 for a house deposit on a 90% loan, plus another $20,000 or so for legal fees and stamp duty.
Translation: homebuyers need an average annual salary, or around $75,000, in the bank before they even consider browsing the pages of RealEstate.com.au.
There’s no skirting around the fact that this is a lot of money, but it’s not entirely unachievable. The truth of the matter is, we’re always committed to something and if you become truly committed to the idea of buying a house, you will find a way to funnel that money away.
You could do things like cut up your credit cards and adopt better spending habits; save your tax return if you’re lucky enough to get money back from the government; go on ‘spending hiatus’ for a month and save everything you would have spent on clothes, gifts and takeaways. You could even get creative online to generate another income stream: Etsy, eBay or Fiverr anyone?
Possible Sabotage #2: You don’t control your money – it controls you
Are you clear on exactly how much you earn and how much you spend each week? Most people think they are on top of their spending without needing a budget – and most of them are wrong, says property expert Helen Collier-Kogtevs, director of Real Wealth Australia.
“A budget is one of the most powerful tools property buyers have at their disposal,” she says.
“I’ve had people admit that they’ve never done a budget because they didn’t want it to restrict their lifestyle, but the reality is, a clear budget does the exact opposite. It shows you what your financial situation looks like and empowers you, because if your budget allows it, you can spend money on your ‘wants’ list guilt-free.”
Collier-Kogtevs worked with one family who had never completed a budget and lived from paycheck to paycheck. After creating a budget they discovered that their were in deficit by $4,000 – so they were spending more money per year than they earned.
With some small changes – including cancelling an unused gym membership, changing mobile and internet service providers to cheaper plans, and paying off credit card debt as a priority – they were able to eliminate almost $10,000 in annual spending.
They were then just one payrise (or one hefty tax return) away from building a sizeable savings account balance.
“If you have a credit card debt and you don’t pay the balance off in full each month, then you’re spending beyond your means,” Collier-Kogtevs adds. “It’s as simple as that.”
Possible Sabotage #3: You have sky-high expectations
That gorgeous three-bedroom house with the beautiful outdoor deck and spacious master bedroom you’ve been dreaming about? If you live in Sydney or Melbourne, it’s probably out of reach financially, unless you’re prepared to live in the suburbs.
There is another alternative, however.
“Australia, in contrast to Europe where most people prefer to rent, has traditionally been a bastion of home ownership and Generation Y is still keen to enter the housing market. The great Australian dream of home ownership isn’t fading away, it’s just that the goal posts are changing,” says John Kolenda, managing director of a national mortgage broker company.
Younger buyers generally can’t afford to purchase the inner-city abodes they want to live in – with a median of $680,000 in Sydney and $555,000 in Melbourne (RP Data, November 2014), prices are uncomfortably steep.
This is promoting a trend whereby savvy first homebuyers “are actually becoming first time investors”, Kolenda says.
“Gen Ys get to enjoy the inner city lifestyle and are happy to rent in those areas… but they also see the advantages of investing in property in suburbs where they can afford to buy,” he says.
Buy in the suburb you can afford and rent in the suburb you love, and everyone’s a winner.
Possible Sabotage #4: You’re simply not ready
If you can come up with more than five excuses as to why you’re not in a position to buy a home, then your mindset is likely programmed into the wrong headspace for home ownership right now.
If you have a lot going in other areas of your life – with your family, in your career or with your health, for instance – than the idea of adding the stress of buying a home to the mix may be subconsciously sabotaging your progress.
“Buying a house is a huge financial commitment and whether you’re a first-time homebuyer or you have plenty of experience, purchasing a house is just plain stressful,” says Michael Yardney, director of Metropole Property Strategists. “It can be a complicated emotional process – it’s a home, after all.”
If this is the case, there’s no shame in putting a pin in your plans. Bide your time while you get your financial ducks in a row by spending some time analysing your budget.
Whether your dream of homeownership is almost within reach or it seems like it’s light years away, remember that the only one who can change your situation is you.
You may want consider speaking to a mortgage expert to get advice on action you can take now (eg. pay off credit cards) to strengthen your borrowing position down the track.
As Collier-Kogtevs says, “Once you’re in control of your spending and your decisions, you can start making smart, sensible financial decisions that move you forward.”