Five things I've learnt during my first year of home ownership.
Exactly a year ago yesterday, I walked through the doors of what would become the first home I ever bought.
Within hours, I made an offer: $870,000 for the two-bedroom unit, within 10 kilometres of the CBD. The seller accepted.
As a single mum, it remains one of the proudest days of my life.
Looking back over my long and winding (and much journaled) journey to homeownership, I feel there are five main things I've learnt.
1. You don't need a 20 per cent deposit
Yes, this remains the gold standard for saving. It proves you have the diligence required to service a mortgage. It can also act as an important buffer, should you be forced to sell into a sinking market.
However, when property prices are climbing, there is a trade-off between saving a bigger deposit and missing out on potential price gains (and yes, I know prices can fall, too).
Turns out, banks are more than willing to lend at greater than 80 per cent loan to value ratios. Of course, if you do so, they'll also happily sting you about $10,000 for "Lenders Mortgage Insurance" (LMI) to protect themselves – not you – if you can't pay up.
2. Choose your parents wisely
It's a sad fact that Australians with wealthy parents can have an easier ride into homeownership. I hate this. But I also swallowed my pride sufficiently to access the "bank of mum and dad" and have them go guarantor on my mortgage.
How does that work? Well, despite having saved a sum of $140,000, I still only had about 12 per cent of my purchase price after the state government took its sizeable bite in stamp duty. To buy my home, I would have to borrow 88 per cent of its value, putting me well into LMI territory.
To get me down to an 80 per cent Loan to Valuation Ratio (LVR) – and avoid paying LMI – my parents were able to go guarantor on the missing 8 per cent – about $70,000. They paid nothing up front, but would have had to find that money – and hand it over to my bank – should I be unable to pay my mortgage.
It made me deeply uncomfortable to think my parents and their home might be on the line if I couldn't pay my mortgage. But then, something magical happened …
3. Homeowners secretly love it when property prices go up
Yes, it's wrong and makes life so hard for young buyers, but making money for doing nothing is pretty fun. I understand why it's become a national addiction. I despair at the chances we'll ever fix it.
In the months after I bought, property prices started rising again, thanks to a combination of interest-rate cuts and relaxed lending rules.
I had my home revalued by the bank in the early days of COVID-19 and it came back at a valuation of $910,000. My initial loan of $767,750 now represented just 84 per cent of the value of the property. I was already half-way there towards discharging my parents from their guarantee!
I just had to find another $23,000 – in addition to the $16,000 I had already paid off my mortgage – to pay down my loan to $728,000 and get just under the 80 per cent LVR.
Thanks to my new penny-pinching lifestyle (more on that soon) I did it. I discharged my parents from their guarantee after only six months – another moment of immense gratitude and also pride.
Of course, falling property prices could easily have had the opposite effect, meaning it would take much longer to get down to an 80 per cent LVR.
I was doubly lucky: both in my choice of parents and my purchase timing.
4. You can probably live on less than you think
Last year, a judge in the now famous "shiraz and wagyu" judgment found that a person's current living expenses were not the best guide to a person's ability to service a mortgage. Why? Because while a person may currently enjoy consuming shiraz and wagyu steak, they are perfectly capable – once shackled to a monster mortgage – of tightening their belts and living a more frugal lifestyle.
In reality, banks largely assess your ability to service a loan against a "household expenditure measure", which calculates the basic living costs of different household types.
If you are saving for a home, it is worth making inquiries what this amount is and trying to stick to it. It will prepare you for your mortgaged life and help you find savings sooner.
I haven't had wagyu steak – or, indeed, a haircut – all year.
5. Owning a home is really nice
Looking back, I have no regrets about buying. Of course, renting makes sense when you're young and you're not sure where you want to live, or with whom. But buying is a worthy life goal.
Not having to worry about your kids drawing on the walls is a liberating thing – although I've done more damage myself, merrily banging nails into walls and ripping up carpet.
I'm also ahead financially. Currently, I pay about $350 a week in interest to the bank – well under the $650 I was paying in rent. My total mortgage payments are higher, at $700 a week, but half is effectively saving, going towards building equity in my home.
A year later, I wouldn't change a thing.
By Jessica Irvine | Economics writer