Thanks to the Reserve Bank, interest rates are still the lowest they’ve been in 50 years, bond repayments are less than rent in many areas, and all your friends are buying property – but as a young person you still have to be sure that homeownership is the right move for you.
The Covid-19 pandemic has also largely removed two other things that have been obstacles to early homeownership in recent years: wanderlust and the need to relocate for work.
The huge increase in corporate acceptance of remote working means that a great many young people no longer have to worry that they might need to move towns to stay employed, because as long as they have a good internet connection, they can do just that from their current homes.
On the other hand, opportunities to become a ‘digital nomad’ and travel the world with your work laptop in hand have been severely curtailed by the pandemic, and with international travel set to become much more expensive, are unlikely to be as widely attainable in the future as they have been in recent years.
Consequently, the recent surge in first-time home buying among people in their 20s is not that surprising. However, there is much more to it than just following a trend among your peers. As a young person, you need to think really carefully about your personal situation before making a commitment that could profoundly affect your future.
For example, if you decide to save up for a 10% of 20% deposit so that you can keep your bond costs down when you buy your home, you need to think realistically about how long that might take and what other goals might be affected. Working from home, you will probably not find it a big sacrifice to give up take-aways or new shoes or fancy coffees. But what if you had been planning to pay for some study courses to improve your qualifications? Would you be prepared to put that goal on hold to save for a deposit instead?
Alternatively, you might decide to go ahead with a purchase with only a 5% deposit in hand – or even to accept one of the 100% loans currently on offer from the banks for those with good credit records. But before you do, you need to assess the risks involved. Property values could decline and put you in a negative equity situation if you take a bond for 100% of the current purchase price. This type of bond also tends to come at a higher interest rate, meaning that your monthly repayment will be more. And you will definitely be in a more vulnerable position financially should interest rates go up again.
It is usually better to keep your bond low and then use any spare cash you may have to pay it off as fast as possible to build up equity – even if this means buying a smaller or less expensive property as your first home. But if you have children, this might be problematic, especially if they need space for home schooling in addition to the space you need for a home office. You might find it suits you all better, right now, to rather rent a bigger home where you can all be comfortable.