Taking the first step onto the Brisbane real estate ladder
With apartment prices down in Brisbane it’s no surprise many first home buyers are seizing the opportunity to buy. So is this the best time to take your first step? Maybe you have adult children still at home and are wondering how you can help them find their own way in the world?! Countless property gurus make a living issuing forecasts and predictions on our real estate market but none have ever picked the bottom of a market. So if you’re waiting for that magical point in time when you know for sure that home prices are at their most affordable, good luck! But if you think, as many of us believe, prices may be somewhere near the bottom of the cycle, here’s some more food for thought.
Usually the annual cost of owning will be higher than renting. Owners pay council rates, water bills, body corp fees, insurance and maintenance. Taking one of our current 2 bed apartment listings in Windsor as a working example these add up to approx $400/month. Then there’s the mortgage and (with interest rates at historic lows) if you borrow the full price of $359,000 that’ll be somewhere around $1670/month. So compared with renting, buying this home will likely be dearer by approx $6,500pa.
If you believe prices have further to fall or somehow might never go up again (yes we usually have a comment or two from the end-of-the-world-is-nigh crowd on this blog!!) then you should continue renting. Investors love you.
But if you buy that home and a flatmate in the 2nd bedroom pays you $150/week, suddenly the sums add up. It’s around $100/month cheaper to own than rent. (Note you may not qualify for the first home stamp duty concessions if you receive rent for a room.)
And here’s a thought for mum and dad who’ve seen home prices rise over time. Even if there’s no flatmate that $6,500pa shortfall is equivalent to just 1.8% of the price of that apartment. If prices rise again by say 5%, there’s a nice, tax-free reward for home ownership. Over this past 5 years, a time that’s included one of our biggest downturns, apartment prices in Brisbane have still risen by an average 1.6% per year.
The modern world is driven by fast data, instant expectations and impatience. We all want rewards now. But home owners know that real estate is a longer term commitment. And one that can be very rewarding financially over time, and come with enormous peace of mind and extra security. A home you can decorate and change and truly make your own.
There’s lots of new rules being introduced to banks to ensure “responsible lending”, but you don’t need thousands in the bank to buy a first home. Bank of Queensland Cleveland’s Brett Smith says it’s common to see a buyer take out a loan for the full property price, with only a couple of thousand dollars for their legal costs. Their parents offer the family home as security. “We can limit mum and dad’s exposure to 20% of the child’s purchase price, even taking a second mortgage behind their current bank provided there’s plenty of equity. This means the first home buyer is getting a leg up without it costing the parents anything.”
Brett says the bank’s 3.79% is available where borrowers have 20% security. This can be by way of deposit, equity in mum and dad’s home, or a combination. “There’s rules around this of course, but many parents don’t realise they’re not just getting them started in home ownership sooner, they can also be saving their kids half a percent or more on the loan by offering a mortgage on their own home.”
Yes we’re real estate agents and yes we like to see people buying homes. But we also know renting is the best option for many people. Around a third of all Australians rent. However when you see a market like this, where prices are low, it simply makes sense to consider your position. To look at where you want to be in 5 and 10 years time.
You don’t need thousands saved for a deposit to take that first step.