Not paying rent was the key motivator for getting onto the property ladder for nearly half of all Australian first home buyers, new research has found.
According to Mortgage Choice and CoreData’s Evolving Great Australian Dream report, 48.8 per cent of first home buyers entered the property market in a bid to get off the “revolving rental train”.
The research showed that this outweighed some of the other reasons why first home buyers chose to buy property, which included: being able to afford it (30.9 per cent), reaching a certain age (28.5 per cent), having children (18.7 per cent) and finding the right place (18.7 per cent).
Commenting on the findings, Mortgage Choice chief executive officer John Flavell said he wasn’t surprised and understood that many Australians would prefer to pay down their own mortgage rather than another person’s home loan.
“While renting can often be a cheaper alternative to buying a home, and making the regular mortgage repayments, that money is only going towards your living arrangements and someone else’s mortgage, rather than a tangible asset that you own,” he said.
“Based on a back-of-envelope calculation, if you were to buy a median-priced house in Melbourne for $620,000 and borrow 80 per cent of the property price, your monthly repayments on a 30-year, principal and interest home loan with an interest rate of 3.79 per cent per annum, would be $2,308.
“Meanwhile, data from CoreLogic shows the median rental price for a house in Melbourne is $400 a week, or approximately $1,730 a month. So, for an extra $578 a month, you could own a property and be using your income to build a portfolio of assets.”
Mr Flavell emphasised that there is no right or wrong decision when it comes to buying and owning property versus renting.
However, he highlighted that property, albeit a substantial financial commitment, had many long-term benefits.
“Property is a long-term investment that can potentially help you to future-proof your wealth,” he pointed out.
He also said that another option for first home buyers is to buy an investment property in an affordable suburb and rent in their preferred location.
“Rent-vesting is a great option for home buyers wanting to get onto the property ladder as they can still enjoy the benefits of home ownership, while living where they prefer,” he elaborated.
“Our research shows that in 2016, 36.1 per cent of investors were first home buyers, up from 20 per cent two years ago.
“Looking forward, we believe this figure will continue to grow as rent-vesting becomes more popular and buyers see it as a tangible way to get their foot on the property ladder sooner rather than later.”
[Related: NSW parents unlikely to help FHB children]
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