Vanessa De Groot 30 Mar 2022

First-home buyers are bearing the brunt of worsening housing affordability issues in Australia, with prices growing higher and the deposit hurdle worse than ever.

The median house price in Australia rose by 22.7% last year alone, PropTrack data shows, with wages failing to keep up with price growth.

It can now take almost a decade to save a 20% deposit in some areas, and then there are costs on top of that.

All of this means that many younger Aussies are struggling to get into the property market.

Many go the traditional route of buying with an intimate partner, while others are lucky to have the bank of Mum and Dad to help… but what do you do if those options aren’t available to you?

Cameron Kusher, director of economic research at PropTrack, said it’s harder than ever for first-home buyers to battle against high prices and borrowing barriers.

“Saving a deposit and the impost of lenders’ mortgage insurance pushes back the timeline in which purchasers can enter into the housing market for the first time,” Mr Kusher said.

Government schemes, like the First Home Guarantee – which the federal government is expanding as part of the budget, handed down on Tuesday – are helpful, he said.

“It should be noted that the number of places available each year is still well below the number of first home buyers in the market in any given year.”

Despite the challenges, many first-timers have managed to get a foothold on the property ladder regardless, outsmarting the boom by adopting creative strategies.

Teaming up with a mate 

Joining up with a non-intimate partner such as a sibling, parent, cousin, friend, colleague or even a like-minded stranger – sometimes known as ‘mortgage mates’ – is an increasingly popular strategy.

It’s becoming so common that some lenders now have tailored loan products, and there is even a website called Mortgage Mates, described as the Bumble or Tinder of home ownership.

Since its recent launch, the service has started to match like-minded strangers to help them buy a home together.

Research from CommBank late last year found more than a quarter of Australians have considered buying property with a non-traditional partner, with two-thirds saying affordability was the reason behind it.

The lender has a product called Property Share that allows borrowers to split the cost of buying a home with a mortgage mate, while retaining control of individual finances.

Mortgage Mates founder Daisy Ashworth said the service was seeing increasing traffic, with the first purchase expected to be made by a match in the next six months.

“Housing affordability in Australia is unprecedented now – that’s driving why people are looking to buy with a stranger,” Ms Ashworth said.

“People don’t grow up thinking this is how their home ownership dreams will come true, but they’re saying, ‘I’m 30 and I don’t want to wait to meet a partner to buy a house, so I’m looking at alternative ways to enter the market’.”

Australian Housing and Urban Research Institute managing director Michael Fotheringham said pairing up with non-intimate partners to buy a home was, in a sense, the new way of share-housing.

“You build equity in the property you collectively own and then each of the people move on to purchase their own place or with a partner down the track,” Mr Fotheringham said.

“It’s a step towards individual home ownership.”

While it can be a great way to get a foot on the property ladder, Palise Property owner and buyers’ agent Steve Palise said mortgage mates need to have risk mitigation front of mind.

“Over time everyone’s expectations and life circumstances change,” Mr Palise said.

“It is very important to have clear exit strategies and a legal contract between the parties should this occur. 

“Often, things such as having a child, broken relationships, and financial tough times will dictate if the property needs to be sold, even if the other party does not want to.”

Jarad* teamed up with his best mate in 2013, when he was 32, so they could both get a foothold on the property ladder, and it’s been more than successful than he imagined.

“We thought we were buying at the top of the market back then for a two-bedroom apartment in Surry Hills, but we now have a valuation for almost double what we paid,” he said.

The friends went in with a 55 to 45% ownership split and initially lived in the property together before renting it out. 

They purchased another property, a two-bedroom apartment in Erskineville, just before Christmas that they are now living in, using the equity from the first purchase to fund the deposit.

“With the first property, we wanted to live in certain areas, and after looking for almost a year we were just below being able to afford to buy, but my friend earned more so we changed the ownership percentages and could afford to buy then,” Jarad said.

“I would totally recommend it; it has worked out so well with my mate. There is no way I would have been able to get into the market on my own.”

Buying an investment property first

The notion of ‘rentvesting’, where first-timers buy an investment property in a growth area they can afford and rent where they want to live, is gathering momentum as a strategy.

“The key benefit of doing this is it enables the buyer to get into the market sooner rather than later, without sacrificing where they want to live and their short-term happiness,” Mr Palise said.

“With a longer-term vision, and if their investment property performs well, it will give them ability to be able to buy their ‘dream home’ down the track.”

Mr Palise said there were many regions around Australia where you can buy quality investment properties for as little as $300,000, but thorough due diligence was necessary before buying.

“One of the drawbacks to this strategy is the investor will often have to buy in a region they are unfamiliar with,” he said.

Another drawback is that you don’t get access to government grants given to first-home buyers, but you get favourable tax settings available for investors, which may make buyers better off, Mr Fotheringham said.

Liam Carmody became a rentvester to get into the property market, buying his first property in Tasmania before going on to build a property portfolio.

He started out renting with his now-wife Amie in Wollongong, but then the couple moved into a share house with strangers to help them save for a few years, as well as doing any jobs they could to make money.

Once they had built a big enough deposit, the pair purchased their first property – a three-bedroom house in Launceston, for just under $300,000 in the mid-2010s.

The couple also relocated to a remote location near Armadale later to save more money, with Mr Carmodys’s employer subsidising rent for 18 months.

With the money saved and growth in their Launceston property, the couple have gone on to buy more investment properties, as well as their own home.

“When we were first looking to buy a property, we were looking at buying an apartment in Wollongong off the plan to live in,” Mr Carmody said.

“For one, we couldn’t afford it but we also didn’t want to buy an apartment because we were talking about having a family and we didn’t want to be stuck with a home we couldn’t live in and have to buy again.

“We decided to buy an investment property first rather than a home because we couldn’t afford to buy the home we wanted.”

He recommends other first-time buyers consider a rentvesting strategy, not only for affordability but flexibility – especially for young buyers that may want to travel or make life changes sooner rather than later.

Moving to cheaper areas 

Some first-timers are moving to more affordable locations – whether that be a different state, city or regional area – in order to buy their first home.

“With working from home and remote options this has also opened the door for first-home buyers to be more mobile in their choice of areas,” PRD chief economist Dr Diaswati Mardiasmo said.

A good example of the difference is a would-be buyer looking to move from Melbourne to Brisbane, Dr Mardiasmo said.

According to PRD data, first-time buyers with a budget of $900,000 or less have access to 3.7% of the residential market in Melbourne’s inner ring, up to 5km from the CBD, and about 53% of housing in Melbourne’s outer ring, 10km to 20km from the CBD. 

That’s based on median home prices, median incomes, and borrowing capacity, to determine the chance of finding a potential dwelling in a particular region.

“However, with that same budget you can access 18.9% of Brisbane’s inner ring and 79.4% of Brisbane’s outer ring,” Ms Mardiasmo said.

Amy Tipton recently purchased a two-bedroom unit in Albury as her first home for $220,000 and will move to the regional city from Melbourne and renovate the property over time.

Working in Albury as a zoologist, the 32-year-old has been commuting to the city for work and renting a home in both Melbourne and Albury for a total of $700 per week.

Buying in the more affordable location will enable her to cut costs by two-thirds and get a foot onto the property ladder at the same time.

“I’m currently based at Frankston on the Mornington Peninsula, and there’s not a chance you can get into the housing market there, unless you’re willing to borrow to the maximum and be really indebted to the bank for the rest of your life,” Ms Tipton said.

“For a one-bedroom apartment in Frankston you will not get anything for less than $400,000. So, looking at house prices in Albury compared to Melbourne and what you can get for your money was a no brainer.

“Albury is regional but close to amenities and only a four-hour train ride to Melbourne.”

Other creative strategies 

Some Aussies are investing in asset classes such as shares or cryptocurrency, or even high-worth collections such as Lego, card games, memorabilia, and stamps to help save a bigger deposit to enable them to get into the market, Ms Mardiasmo said.

“Younger people are increasingly becoming well educated when it comes to investment options, and they are looking at it as an alternative way to build wealth and cashing in later when they are ready to purchase a home.”

Craig Jackson, 26, bought an investment property in Cairns for his first purchase after finding property in Sydney, where he lives, to be “absolutely unaffordable”.

Mr Jackson paid $215,000 for a three-bedroom home in March 2020, using a deposit he had saved largely by investing in cryptocurrency.

“Investing in crypto through the Bamboo app has really helped speed up my savings process, making things like the house deposit possible,” he said.

“I’m fortunate enough to have the property positively geared so it’s essentially paying itself off. It has also grown in value since I bought it.”

To help with gathering a deposit, first-time buyers are also taking advantage of government incentives such as grants and stamp duty discounts, or initiatives such as the First Home Super Saver scheme, which allows eligible participants to save money for their first home inside their super fund.

If buyers can’t afford a whole property, they can also get into the market by buying shares in an investment property, through companies such as BrickX.

Then there is the lesser known deliberative development, which is where future owner-occupiers of a multi-residential property get together and develop themselves, which cuts costs.

Rent-to-own schemes, which enable a renter to purchase a home after a predetermined period, are another option, but can be fraught with danger.

The positives are that it eliminates the need to save a typical larger deposit, to secure finance at the time of purchase, and protects the buyer from any future property price growth in the region if it’s more than the predetermined amount, Mr Palise said.

These can be great for buyers should the market perform well, but if prices go backwards, the renter is then required to purchase the property for more than the market rate. 

“The buyer will not actually own the home until they have made final payment, and they could risk not being able to obtain finance for the property and you would lose all the money you have spent,” he added.

 “As you have zero control on the property until the final agreed payment, the property could also be repossessed by the bank from the current owner.

“You could also be found in breach of the agreement should you miss rental payments.”

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