Why everyone in their 20s doesn’t need to own a home right now

FOMO in the property market can be very real. Whether housing is seeing a price boom or bust, first home buyers may feel the urge to ‘get in’ before prices skyrocket, which could see them sacrificing value or must-haves on a property checklist. 

And while some 20-somethings may be in a financial position to buy their first home, it isn’t a requirement for everyone in this age bracket. So, let’s explore how owning a home can impact your budget and lifestyle, and why renting isn’t always a dirty word.  

The costs behind buying and owning a home

The massive amount that’s required to purchase property – which has been on the rise for the last six months – is the headline cost most people think about when considering home ownership. But there are a bunch of other bills connected to buying and maintaining a home, including:

• Home loan costs, which can include legal fees when you take out a mortgage, as well as ongoing administrative fees and, of course, the ongoing cost of interest rates applied to loan repayments.
• Fees and taxes. While there are some concessions for first home buyers in certain states, stamp duty (aka transfer duty) can be another cost you need to pay when purchasing property. Land tax could also come into the equation if the value of the property is over a certain amount and you fit in a specific buyer category (again, this differs between states and territories). Then, if you’re purchasing an apartment you’ll need to budget for ongoing strata fees for the management of communal areas. 
• Maintenance costs will come up at some point with every property type, whether it’s a brand new build or an older fixer-upper. While these costs may only be on-offs or minimal, you’ll want to pad your savings with some wiggle room in case these things are more costly than you anticipate.
• Home insurance can help mitigate some maintenance costs if damages fall within an insurable event, but your annual home and contents insurance premium can be costly in itself. Despite this, you’ll want a policy that can help protect your property in an emergency and ensure you’re not left with a massive repair bill, so check out this guide to what you need to know about insuring your first home.     

The benefits of renting

It’s a pretty special experience owning your own home and there are plenty of financial and personal benefits to owning property if you make an astute purchase. But if you’re in the right stage of life and frame of mind, renting also has its advantages. 

Many people in their 20s are celebrating their final years of study and starting out on exciting career trajectories. You might be letting the workforce winds carry you to new towns and cities, having a blast living and partying with friends, or experimenting sharing your space with a new love interest.

Flexible renting arrangements are an ideal setting for all of these circumstances as it’s usually a lot easier to break a lease than sell a house, even if you do get slapped with a fee.

And as we’ve mentioned, you’re not responsible for property upkeep or taxes for your rental like you are if you own a house or apartment. This could be very appealing if you’re on a shoe-string budget or looking to funnel your savings toward other adventures on your 20-somethings bucket list.    

High property prices mean a larger deposit

Many banks and lenders now offer home loans to people with deposits well below the traditional 20% value mark. While this means you’re able to get into the property market sooner, low deposit mortgages do come with risks. 

On average, borrowers with a higher loan-to-value-ratio or LVR (which is the percentage of a property’s value you still owe to the lender) will be offered slightly higher interest rates. In combination with larger loan repayments or longer loan terms, this can represent a significant sum over the life of a mortgage.

Buyers may also need to consider the cost of lenders mortgage insurance (LMI), which is an additional fee banks and lenders can charge as a kind of security if you don’t meet their deposit requirements. 

You can sometimes get around this by getting a personal guarantor who puts up their own assets (like a house) as collateral for your loan. Another option is to apply for financial support schemes where the government fills the guarantor’s shoes. And while some banks are scrapping LMI to encourage more borrowers, it’s important to remember taking out a home loan can involve additional, less obvious costs as we’ve already outlined. 

So, when you’re teetering on the edge of what is probably the largest purchase you’ve made in your life, the best advice is to not rush in.

First home buyer support is available, but there are conditions

There are numerous government schemes currently available to prospective first-time buyers which could make home ownership more attainable. However, most come with strict conditions, are only offered through specific lenders and are often capped to a certain number of applicants. 

Be sure to read all the details in Mozo’s guides about these government support measures below to see if you’re eligible:

• First Home Loan Deposit Scheme: This is the scheme where the government acts as a guarantor so you can avoid paying LMI if you have a deposit between 5% and 20%. As part of the Federal Budget, another 10,000 places were made available for newly built homes and another 10,000 for existing residential properties from July 2021.
• Family Home Guarantee: Similarly, this 2021 Budget initiative will relieve the burden of paying LMI, this time for borrowers with a deposit as low as 2%. It is only available to single parents on an annual taxable income below $125,000, and while it isn’t exclusively for first home buyers, many in this category may fit the criteria. There are 10,000 applications available from July 2021. 
• First Home Owners Grant: When it was introduced in 2000 this scheme offered substantial lump sums to prospective first home buyers, but it’s now limited to those purchasing a new or significantly renovated home of a certain value. Buyer criteria and the grant amount differs between the states and territories, but you’re generally looking at a lump sum between $10,000 and $20,000 if you fit the bill.
• First Home Super Saver Scheme: This allows first home buyers to save for a deposit via their superannuation funds, where they’ll be taxed at a lower rate and earn better interest than a bank or savings account. Savers can make up to $15,000 in voluntary contributions each year (to a total cap of $50,000) which they can then withdraw for the specific purpose of purchasing property. 

If you feel fully prepared and ready to jump into the property market, start researching home loans with the options below.