You’re at a dinner party in Sydney, talking to your mates about your favourite subject: Sydney property prices and how to buy a house in Sydney. While some bought at the height of the recession for a bargain, others feel locked out of the Sydney property market.
Does this scenario sound familiar to you?
Is it too late to fulfill those home owning dreams?
When everyone from your friends to the mainstream media is speaking with fear on their minds, it’s easy to give in and believe the hype. How many times have you thrown up your hands in disbelief at the latest hike in property prices? Some believe it’s far better to just move back home or stay renting, and forget the dream all together.
But what’s true and appropriate for one person’s finances might not be for another’s.
Do you fully believe that buying your first home is all but a fantasy?
Is your dream castle in the sky just that – a castle in the sky?
What one media outlet will be different from what another will tell you, and so it goes with friends too. And of course, with mortgage brokers as well.
But with all that aside, here are some top home owning myths busted. As you should be with everything you read, take your time to consider these statements, and how they affect your individual financial situation. They’re not meant to be blanket statements applicable to all, but they can help you assess what’s right for you and what you can afford.
Myth 1: Renting is cheaper than buying a house in Sydney
With property prices continuing to rise, many fear that it’s far too late to enter the Sydney property market. Want to live in the emerald city? Some say it’s far more realistic and cheaper to rent than to buy. If you’re young and single, and prefer the lifestyle and career opportunities that living in a city can provide, renting just might be the cheaper option for you right now. Not to mention providing you with financial freedom to spend your money elsewhere, and not on a huge mortgage.
But if you want to a home in Sydney away from those highly priced suburbs, the reality is far different when you do the math . Like with any large financial decision, there are both advantages and disadvantages with both buying a home in Sydney, and renting in Sydney.
Here’s a simplified summary of why owning a home, if you have a good credit score and the means to service your loan, is better than renting:
If you already own a home, those capital gains will work in your favour as the median house price rises. When you sell, you’ll make a profit. But if you’re renting, you pay extra to your landlord as they jack the price up to coincide with rising mortgage rates and the Consumer Price Index. That’s money you’re paying to someone else. There’s also the non-monetary benefit of the security of owning a home, and the freedom to do as you please with the place.
That’s not to say that buying doesn’t have its disadvantages. Interest rates, although at an all time low, are often on par with the amount of rent you’d paid a year. And that’s a cost ON TOP of your monthly mortgage repayment.
The average variable interest rate sits at around 4.50 per cent. Let’s do the math for a one-bedroom apartment in Sydney:
Property price: $500,000
Home loan: $400,000
Interest: $18,000
That’s almost the same amount you would pay to rent a similar property for a year.
But that’s a whole other post for another day.
Myth 2: I’m stuck with the same mortgage FOREVER
If there’s one smart habit that a savvy first homebuyer like you should employ, it’s reviewing your mortgage every 3-5 years to see if it still works for you. Your financial situation could very well change in a few years after buying your home in Sydney, so it makes sense to get advice. Seek out an independent mortgage broker, and they’ll be able to recommend any action you can take to minimise interest repayments and save on your mortgage.
Learn how to easily refinance your mortgage in this post.
Myth 3: Sydney property prices will never fall
Some major economists and news media say property in Sydney has hit its peak, and the housing market in 2016 is looking to finally burst. And although Sydney property prices have been inflating since the 1980s, they also fell during the GFC. Will Sydney property prices ever fall again? The Sydney property market fluctuates. While no one is hoping for 2008 economic conditions, the future of the Australian property market is unlikely to continue on an upward trend forever.
Myth 4: Owning a home in Sydney means you’ll never have any freedom
While renting does leave you with the flexibility to move about when a sea change is on your mind, owning a home in Sydney is not the ball and change that it’s made out to be. Who knows where this myth came from! As someone who helps people in Sydney buy their forever homes, I call BS.
Owning your own home doesn’t mean you’ll be chained to your house forever. There’s always the opportunity to rent it out via a real estate agent, or even list it on Air BNB while you go away.
Myth 5: You need a huge deposit to buy a home loan
Yes, the banks want to see that you have genuine savings, which demonstrates that you’re a committed, financially savvy potential first homebuyer.
But how much exactly do you need to save for a home loan deposit?
In short, you need roughly 11-25% of the cost of the home loan saved. If that’s not within your reach right now, there are ways to get around it. If you pay a smaller home loan deposit, you’ll pay Lender’s Mortgage Insurance (LMI). This mitigates the bank’s risk of lending.
How much do you need to save for a home loan deposit? Read this post to find out exactly how much you should save!
Buying your first home is nothing to be taken lightly – it’s a huge financial commitment, and you need to do your research before taking it on. But not everything you read will be 100% factual, and for every claim there will always be an opinion piece to counteract it.
My advice? Proceed with caution. Don’t give in to the doomsayers, but don’t trust the man with dollar signs in his eyes either. Look out for your interests, know what you can afford, and always seek out independent advice.
Looking for help? I’m a mortgage broker in Sydney who helps young professionals and families secure the homes of their dreams. Why not get in touch for honest, genuine advice?