In my role as a mortgage broker, I help young Australian first homebuyers to buy their first home. By the time they come to me, they’ve already made up their mind. They want to buy a home, because they understand it’s a good, long-term financial decision.
But you? You’re probably still on the fence. You’re reading all over the internet that buying a home in Sydney is a very, very bad idea and it’s far better to keep renting and living with five housemates.
But I’m going to tell you something a bit different today.
Those articles are wrong. They’re fear mongering! Bad news makes headlines for a reason, but it’s often far from the truth.
Truthfully though, buying a house is one of the best long-term financial decisions you could make, and I’m going to tell you why.
The set up – financial uncertainty
Buying your home is the biggest financial decision you’ll ever make. And with the media casting a very black cloud over the Sydney property market – “it’s unaffordable! You’ll never own a home!” – it seems like a far off dream.
The thing is, people are still scared after the GFC of 2008. You’re scared that if you buy a house, the property market will burst. Your house will depreciate in value, you’ll lose your job, and then you won’t be able to meet the payments on your mortgage. The end is nigh!
And even if you’re earning the average Australian wage of $75,000 a year, how do you actually save up for that mortgage deposit? Wouldn’t it be far better to rent forever, and never be beholden to a bank?
Think again.
You’re your own worst enemy
When you’re thinking about saving and potentially losing money, you’re more often than not thinking with your emotions. How will I feel in the short term if I can’t afford tickets to Laneway? What if I win the ballot to Heston Blumenthal’s restaurant and I can’t go, because I’m saving every cent I make? These are all emotional decisions, likely based on a mighty fine case of Fear Of Missing Out.
But these are your savings we’re talking about. You need to think logically, not emotionally. Of course, the things you spend your money on will provide some sort of emotional fulfillment. But when it comes to your future, it pays to put your emotions aside.
It’s all about the long-term
We’ve been told time and time again that buying a home in Sydney is no longer a wise financial decision. But these articles are talking about the short-term, and not the long-term.
They don’t take into account the reality of buying versus renting.
Let’s look at the numbers:
You buy a house for $500,000 on the outskirts of Sydney. That $500,000 is just the beginning of what you’ll pay! Let’s say you have a fixed interest rate of 4%. You’ll also have to pay stamp duty and potentially mortgage insurance, not to mention paying for all the maintenance that goes with home ownership. Let’s cap that at 1.5% of the value of your home.
Put all of this together, and over the next 30 years you’re paying:
| Deposit | $125,000 |
|---|---|
| Home Loan | $400,000 |
| Monthly mortgage repayment | $1,910 |
| Loan repayment over 30 years at 4% interest p.a. | $687,600 |
| Maintenance | $75,000 |
| Total over 30 years | $762,600 |
And that’s not including your stamp duty and council fees, which change from suburb to suburb in Sydney!
It looks like a lot, but what about compared to renting?
Let’s say you’re renting a really nice place in Potts Point for $2,000 a month.
Over the next 30 years, you’ll pay $720,000.
Renting still looks cheaper, right?
Wrong.
Why?
- We haven’t even considered capital growth. The property market goes through peaks and troughs. According to data from Core Logic, Sydney property experienced a growth of 9.51% in the last year to February. That’s an extra $45,000 for you, in just one year alone.
- We haven’t mentioned the fact that there’s no capital gains tax on your principal place of residence. So if you end up selling your home, that’s pure income for you. No extra money to pay at tax time.
Why you need a mortgage broker
When you’re looking into buying a home in Sydney, you’ll be looking for the best deal you can get. But the mortgage market is dominated by advertising and marketing from the big four – that’s those big banks that you see everywhere.
My crystal ball is a bit rusty, but I’m going to take a guess and say that you’re probably pressed for time, and you might be tempted to take these big banks up on their offer. They’re credible and after all, they’re well regarded for a reason, right?
Not always.
While you might find that one of the big lenders has a mortgage that’s right for you, it pays to look around.
But who has time for that?
That’s why engaging with an experienced, genuine and knowledgeable mortgage broker quite literally pays for itself.
A smart mortgage broker in Sydney will know exactly what kind of loan you need, and will be able to provide an outsider perspective. We’re not beholden to these big banks you see, so we get to give you honest advice.
Scared about the upfront cost? Don’t be. This is how we get paid.
In summary
It drives me insane to see so many so-called qualified experts tell the public that buying a house is a poor financial decision.
This is my counter-argument.
It’s not that they’re 100% in the wrong – it’s just that they’re not taking into account the bigger picture. That’s you, 30 years from now, with more money in the bank than when you first started.
Think about your future – now would you prefer to own your own home, or still rent from someone else?