Loan pre-approvals by banks can be confusing. They aren't a rubber stamp to buy whatever you want, but some buyers are being a little too cautious.
Housing affordability a problem – but there are answers
In light of an Australian Bureau of Statistics report showing dramatically higher housing costs over the last 15 years, Monique Sasson Wakelin, managing director of Wakelin Property Advisory, is encouraging all stakeholders to address this pressing concern.
“The ABS data shows that despite housing costs rising 42% over the last decade for mortgage holders, the proportion of household income spend on a mortgage remains steady at around 18%,” said Ms Sasson Wakelin.
“As troubling as the cost increases are, this is one of the inevitable consequences of what I call Australia’s economic success story. We are the envy of the industrialised world. We have a well regulated financial system, lots of fat in our interest rates, inflation under control at just over 3 per cent, effectively full employment, a growing population and a housing shortage – not surplus – of around 190,000 dwellings.”
“If you believe – as you have every reason to – that Australia has a very bright future, and if Australians still aspire to own their own property then some sacrifices are part of that overall good news story.”
Notwithstanding, the problem is real and as part of the solution, Ms Sasson Wakelin believes both government and individuals have a role in assisting home buyers to save.
“If we are serious about fixing affordability problem than the Federal Government needs to institute a proper, flexible and secure savings scheme for first home buyers that is tax free and places no limits on the entry or exit time frames and amounts held in the account.”
Ms Sasson Wakelin said it is also incumbent on individuals to understand that there are some things that as individuals we can’t control. “Part of the solution is modifying your strategy.”
First home buyer solutions
“Those looking to buy their first home should try to be patient, keep expectations about their first home very modest and think in terms of stepping stones,” says Sasson Wakelin. “If you have the option to live with parents longer and saving, do so. Also accept that your first home won’t be your dream home. By keeping your borrowings as low as possible and aggressively reducing debt, you will build equity that can be leveraged to buy your next home, which hopefully will be closer to your ideal.”
Notwithstanding high prices, Ms Sasson Wakelin sees the current softer property market as an opening for prospective buyers. “On a national basis, the property market is down by 5-10% nationally from its peak, so the opportunity does exist. The good news is that this situation is likely to persist until at least mid 2012.”
Some responses to key points in the ABS findings:
Outright ownership down from 42% to 33% in last 15 years
“Falling ownership levels are in part due to low affordability but also due to more people using home equity for gearing into investments.”
More home owners now reliant on mortgages up to 36% from 30% over last 15 years
“Home values have been pushed up by strong capital growth as a function of high underlying demand, and an overall housing shortage especially in the lower end under $600,000 nationally. The increased reliance on mortgages is an unsurprising result of this trend.”
More people renting than ever before. Up to 24% from 15%
“Once again the growth in renters is partly a challenge of lower affordability. However, more people, especially under-35s, are now choosing to rent and invest rather than own a home – they see it as more tax effective. This is a very legitimate and contemporary strategy that helps mitigate the undesirable aspects of the wider problem.”
Average first home buyer’s loan up to $280,000 from $160,000 between 2001 and 2011.
“Today’s first home buyer is different to that of 10 years’ ago. Many under 35s are tending to be in higher paid employment than their predecessors. Strong growth industries such as IT are a case in point. Meanwhile, many more people are living at home with parents longer and therefore are able to save more and therefore obtain bigger loans when they are finally able to buy. So the lifecycle norm has shifted dramatically in last 15 years.”
Image: Salvatore Vuono