The rent merry-go-round
Rental costs have risen dramatically over the past few years, with increases of 15.6% in 2022 and 11.5% in 2023, according to Domain (Domain). With prices soaring and a persistent shortage of new dwellings, how can renters break free from the rental merry-go-round and purchase their own homes?
Most of us rent at some point in our lives. The downside is that rent typically helps someone else pay their mortgage, often an investor, without building any value or equity for you. Rent increases annually, and there’s no security of an ongoing lease. While renting might be necessary for a while, owning property is more beneficial in the long term.
When you own a home, you eventually pay off the mortgage, resulting in an asset that appreciates due to market forces. If you’ve bought well your property will increase in value over time, contributing to your net wealth.
While you are renting, you pay rent and try to save simultaneously. In contrast, when you own property, your payments go toward your asset.
For example, if you pay $610 per week or $2,643 per month in rent and try to save $1,000 monthly, you’ll have $12,000 saved in a year and $192,000 in 16 years (plus any interest earned eg. 3% $205,036 or 5% $235,184).
If you purchase a $650,000 property through the Shared Equity Scheme, your monthly repayments would be $2,878. Making extra repayments of $1,000 monthly could help you pay off your mortgage in 16 years instead of 30. Your property would then be worth $650,000, plus growth—estimated at 3% per annum, resulting in a value of $737,387, or at 5%, a property value of $965,217. That’s mind-blowing and doesn’t take account of any improvements you may make!
While buying a home in today’s market may seem impossible, it isn’t! There are two main ways to tackle this issue:
Firstly, do some analysis to calculate your ability to apply for and service a mortgage, ensuring you have a sufficient deposit. This can be daunting for first-time buyers—where do you start?
Key actions include:
· Understanding your current spending
· Determining how to save for a deposit, setting a savings goal, and estimating the timeline
· Calculating how much you can afford in terms of housing and a mortgage
· Assessing other available assistance for deposits or shared equity.
Another key element is, take advantage of government programs designed to help, including:
· Rental support
· First-time home buyer programs - there are a number like the Shared Equity Scheme in Victoria (each State/Territory has a similar program).
There’s a lot to learn and I’ve distilled it down to make it logical and to guide you through, step-by-step in an online course: Unlocking Home Ownership: The Complete Course. There are lots of templates and tools to support you.
Owning your own home takes planning, commitment, and expanding your knowledge. It won’t just happen if you hope for the best and wait.