(03) 9020 2905Wherefore art thou, Juliet and Romeo? Where be your dreams of home ownership? Have you cunningly faked your own death? Or are we staring down at your corpse?
Why aren’t you lovely young couples buying homes? Has something in particular turned you off? Sick of the chase? Decided renting makes more sense?
Because, truth be told, you might not get another chance like this. If you’ve moaned recently about house prices, you might be squealing at an opportunity missed in a year.
Low interest rates, wages doing okay. House prices are on the rise, but in Perth have been far more subdued than the rest of the country. The most recent home affordability survey suggests opportunities like this are infrequent.
But you’re not buying. The percentage of home buyers taking out loans is at an all-time low.
Property is selling, but not to you young love birds. Is it perpetual fear that prices are too high now? The size of the mortgage? Fear for your jobs?
Obviously, if property prices rise further, fewer of you could afford a home. It’s the same story if interest rates rise. (However, buying a home locks in the price, plus the size of the debt.)
A recent story was trying to scare the pants off people with the “true” cost of buying a home. If you bought the average Australian home for $565,000, the cost of the mortgage over 30 years would be approximately $1.25m.
The story said that’s the amount you would have to repay in interest and capital, if interest rates averaged 7 per cent. (It also assumed you had $90,000 saved for a 10 per cent deposit plus stamp duty.)
The catchy slogan? Buying a home now would make you a “million dollar mortgage slave”.
Right, look at it like that and who on earth would consider buying a home?
But I feel a need to point out “the truth”, if you think you can handle the truth.
That figure is actually three parts baloney and two parts mischief, mixed in with a healthy dose of codswallop.
And it’s only half the story. Not only is the mortgage highly unlikely to cost you that, but even if it did, the alternative – renting – is far more expensive.
The million dollar slaves article assumes you only ever paid the bare minimum on your mortgage, that you never used an offset or redraw account and that you never put part of a pay rise towards higher repayments on your home loan.
Fact: virtually no-one will have a mortgage for 30 years. Even small amounts in your offset and redraw accounts, and small amounts of savings, will cut your interest bill dramatically.
But if that $1.25m “cost” of buying a house scared you, let me really scare you.
Try renting.
Renting that same property (assuming an ongoing 4 per cent rental yield for the investor), will start off costing you $22,600. Let’s assume property prices rise by 5 per cent a year.
After 30 years, you have paid $1.5 million in rent, more than the mortgage repayments, if you only ever paid the bare minimum.
However, the renters do not now own an asset worth $2.33 million. They are now paying $93,000 a year in rent. The buyers are settling in to pay nothing for the rest of their lives.
By year 45, the rent will be approximately $193,000 a year. The buyers own a house worth $4.83 million. They’ve also saved another $623,000 in mortgage repayments, because the mortgage is gone.
The latest HIA/Commonwealth Bank Affordability Report says homes are more in reach than they have been in 11 years.
But the Australian Bureau of Statistics said first home buyers made up just 12.3 per cent of new finance for owner-occupied housing in November – they’re normally 20 per cent.
Who’s cashing in on the “affordability bonus”? The experienced money. Investors borrowed 34 per cent more money than they did the previous year to purchase property.
Why let the early bird investors get all the worms?
Awake now Juliet and prod your napping Romeo. The figures suggest that the sun has risen for first home buyers. Get up and have a fresh look at your finances to see if you should be seizing the day.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.