Are you ready to buy?

Originally published in New Woman

By Alex May

Buying four walls to call your own can seem hellishly out-of-reach.
Even a stingy little apartment will cost hundreds of thousands of dollars. Then there are scary things like stamp duty, building inspections and legal fees. And hell, a 30-year mortgage is a very, very long relationship to have … and it’s with a bank, not a bloke.
But here’s an idea: just treat property perusal like a Saturday shopping spree. Naturally, this shopping spree takes a smidge more planning than a stroll down to the local hip strip. But we do like to take the screaming sensible-ness out of major life decisions … and this might just be the most life-transforming purchase you ever make.

STEP ONE: CHECK SPENDING, OOPS, BORROWING POWER

No-one, except maybe Paris Hilton, buys a house or apartment with money they have saved up. The majority of first home buyers get a bank or lender to cough up between 95 and 80 per cent of the price and then spend the next 25 years paying it back.
It’s called a mortgage, and in today’s flexible lending market, just about everyone with an income qualifies to borrow money. Warren O’Rourke from Mortgage Choice says the variety of mortgages available today make it much easier for people to qualify for a loan.
“There are loans where you can borrow 100 per cent of the purchase price; there are loans which allow parents to fund deposits; and there are loans where different family members or friends can all get together to buy a place,” he says.
There used to be an old rule of thumb that people could borrow an amount equal to three times their annual income. This still works, but there are plenty of lenders keen to snare business and they will work with you to make sure you can borrow as much as you can possibly qualify for.
And most banks or mortgage brokers will happily give you a ballpark figure over the telephone to let you know how much you can borrow based on your income. This needs to be followed up by a face-to-face appointment and some serious financial planning, but at least it gives you a start.
Lenders like Wizard point out that the most economical way to borrow large sums of money for a property is to save up a 20 per cent deposit, so you don’t have to pay thousands for fees like mortgage insurance.
It’s also a lot easier for couples to get a start on the property ladder than single chicks, and this is because two people have double the borrowing capacity. But check out the case studies in this story which prove that you don’t have to wait for Mr Right before embarking on a home of your own.
NOTE TO SELF: See mortgage broker or bank with details of income, debts and savings plans.

STEP TWO: LEAVE YOUR CREDIT CARDS AT MUM & DAD’S
Luckily it’s not possible to put a $250,000 apartment on your Visa card. Unlike a $250 pair of shoes, a $250,000 mortgage will cost you around $1800 a month for the next 25 years.
Just like a real-life shopping spree, it is wise to leave your credit cards at home – but not because you will be tempted to whack an apartment on the plastic. O’Rourke says it is prudent to reign in all other debts like credit cards and car loans before landing yourself in mortgage city.
“If you get rid of all your other debts, borrowing capacity often goes up as well. It does make sense to pay off car loans and get overseas trips out of the way before you get a mortgage,” he says.
“Then you have to start a savings account just for a home deposit. Don’t ever withdraw money from it and you start to build up a good savings record.”
There are other tips to improve your ability to save and therefore afford a better property – and not all of them involve a five-year ban on shopping.
“One of the best things you can do is ask your parents if they will put up with you again so you can move back in with them,” O’Rourke says.
“In Sydney, you can pay between $200 and $400 a week on rent and if you can put that towards saving a house deposit, that’s $10,000 to $20,000 in one year.”
NOTE TO SELF: Be nice to parents and take a serious set of scissors to credit cards. Start to covet joy of looking at growing bank balance rather than joy of new jumpers.

STEP THREE: START WINDOW SHOPPING
Oooph. Yes, that’s the sound of your disappointment when you discover just what price range you can afford to buy a property in.
Experts like Australian Property Monitors research director Louis Christopher says today’s first home buyers forget that their first home will not be their last.
“Everyone wants to live in an apartment at the beach instead of thinking, well we will just get started out west where we can afford and work our way back to where we ultimately want to live,” he says.
Australia has been gripped by a property price boom from 2001 to 2003, with prices in many areas skyrocketing up – but that’s not likely to keep on happening, which is good news for first home buyers.
“Depending on interest rates, house prices will be flat and possibly fall in some areas in the short term,” Christopher says.
O’Rourke says there are other options for getting on the property ladder, even if you can’t afford a house or apartment you want to live in.
“The best option is to spend some more time saving so that you can afford something bigger or in a better location,” he says.
Other options include:

• Buying with a friend or sibling

PROS: No need to wait for Mr Right to come along – just split the purchase price and deposit costs which usually means you can afford something bigger and better than on your own.
CONS: Not usually a long term solution and you HAVE to make sure you get along well. Seek legal advice and buy the property as tenants in common to protect yourself.

• Buying an investment property to rent out

PROS: Dipping your toe into the property market can be useful, but rental income needs to exceed mortgage payments for it to really make sense. Over time, you will you pay off the investment property, which means you can then sell it to finance your own home.
CONS: Negative gearing (spending more on mortgage than receiving in income) is riskier in a post-boom market like today. And if you don’t live in the property, then you also have to fork out for your own rent.

• Broaden your horizons by buying in a cheaper suburb further away

PROS: Can achieve home ownership sooner than waiting until you can afford the location and house of your dreams.
CONS: If you hate the area, you are stuck there. It simply isn’t worth buying and selling in a short time frame as expenses like stamp duty are just too high.
NOTE TO SELF: See living in small dog boxes in a whole new light, gripped by joyous knowledge that said dog box can secure financial future.

STEP FOUR: NO EXCHANGE, NO REFUNDS, EVEN WITH A RECEIPT

Unlike those pedal pushers you bought four years ago and no longer wear, a property must suit your needs for at least five or ten years.
Macquarie Bank’s head of property research Rod Cornish says the only way to make money out of property is to live in it for at least a five-year period.
“At the moment, affordability is very low, but over time the capital prices of property rise and people pay more off their mortgage so their net worth becomes higher,” he says.
For those who don’t really understand financial stuff, it means that even though it costs more at the moment to buy a place than to rent one (have a look at our table on pg xx), eventually the values of properties rise and the mortgage reduces as you pay it off. At the same time, your income generally goes up. Rents, on the other hand also spiral upwards so after a period of time, the home owner is paying less than the renter.
The fees and charges involved in buying property are fairly steep – but the Federal Government gives every Australian first home buyer a $7000 grant to put towards these, and each state will offer their own concessions on top of this.
The main reason people bang on about the sensible-ness of buying your own home is that it offers you financial security later in life when the mortgage is paid off. After all, you don’t want to be forking out for rent when you are on a crummy aged pension – think how hard it will be to hit the mall on a Saturday with a zimmer frame and an empty wallet.
NOTE TO SELF: Love living in own house. Will prevent me having to give up shopping in my old age.

BOXES ON HOUSE PRICES
BUY VS RENT: WHAT IS COSTS
City Median apartment prices Weekly mortgage repayments on entire purchase price Weekly mortgage repayments with 20% deposit saved Median weekly rent for apartments

• Adelaide $216,000 $360 $288 $165
• Brisbane $238,000 $397 $317 $215
• Canberra $275,000 $458 $366 $270
• Darwin $175,000 $292 $233 $210
• Hobart $208,000 $347 $277 $160
• Melbourne $302,000 $503 $403 $210
• Perth $215,000 $358 $287 $155
• Sydney $360,000 $600 $480 $290

* This table is based on median prices and rental figures published in the Real Estate Institute of Australia’s Market Facts, December 2004. It assumes a mortgage interest rate of 7.25% over 25 years – the mortgage payments can be cheaper if taken over 30 years.

THE MORTGAGE-READY CHECK LIST
House fantasist

• Happily splurge on homewares but freaks out when the credit card bill arrives.
• Read fancy homes magazines and dream about fabulously-styled bedrooms and stunning open plan living rooms with water views.
• Don’t know their square metre from their three-seater.
• Love the idea of meeting a tall, handsome accountant, lawyer and mortgage broker … for a drink
• Might think of moving to Paris next year to check out the architecture … or even volunteer at an orphanage in Cambodia – who knows where life will take them!

Mortgage pragmatist

• Have credit cards and mobile phone bills completely under control (most of the time).
• Read newspapers and internet sites about property, skipping the pictures of fabulously-styled bedrooms and stunning open plan living rooms because they are waaaay too expensive.
• Already own a piece of furniture worth more than $2000 – and manage to keep the red wine stains off it.
• Meet their accountant, lawyer or mortgage broker in duly diarised day-time appointments.
• Plan on living in one place for at least a few years – hell, will even consider moving back in with mum and dad to save some money.

CASE STUDIES

Sarah Mitchell, 31, owns her own marketing agency Sarsparilla
Sarah bought her first house in the Victorian beach town of Rye four years ago has just bought her third property, a townhouse in the city of Adelaide.

“I was just your typical single girl spending every cent that I earned before I bought my first house. I had been working in Melbourne and I really wanted to buy something but I was on my own and only saved a small deposit so I couldn’t afford anything that I wanted to live in.
“The house at Rye, which is only about an hour and a quarter’s drive out of Melbourne, had three bedrooms, a bathroom and nice open plan living and dining and it cost $150,000 back in 2001. It was 10 minutes walk to the beach and I just had it re-valued - it’s worth $285,000 now.
“Everyone told me not to buy Rye because I wasn’t going to live in it. Even I was worried about how I could afford it but I managed to rent it out to friends for holidays and weekends. The mortgage was about $700 a month and I would charge $200 a weekend or $400 a week so I always managed to cover the expenses.
“I decided to move to Adelaide in 2002 to start my own marketing and PR company, and I bought an apartment off the plan with my boyfriend Josh for $220,000. I rented out the Rye house to a permanent tenant. I had some dramas when the tenant did a runner in the middle of the night leaving the rent unpaid and causing $1000 damage, but other than that it’s been pretty good.
“Josh and I have just bought a three-storey townhouse off the plan, which will be ready to move into in December. We will hold on to our other apartment and sell the house in Rye. My family’s calling me the property mogul, but it’s really not that hard to set yourself up.
“If I can buy a property on my own, then anyone can do it. It helps when you have a partner, because then you can borrow more money but I think you should just buy whatever you can afford and get a start. It wasn’t like I was earning mega bucks when bought my first place – I just found something I could afford.”

Tracey Wigg, 35, works in PR
Tracey bought her first house in Sydney with her brother in 2000 and is now looking to buy a farm in rural NSW.

“Sydney was just so expensive even back in 2000 that I could only afford to buy a tiny unit on my own. My brother had just been divorced and was looking for a house and I was looking to buy a unit, so we decided to pool our money and buy a decent house that we could share.
“We bought a renovated two-bedroom terrace in Redfern for just over $300,000 and had agreed we would live there for a few years and eventually sell it and go our separate ways. We both knew it would be a short term thing that would give us a good leg up in the property market. It also meant that I could buy a dog because I would have a garden of my own – that was really important to me.
“We sold the terrace in 2003 for $600,000, so we’d doubled our money. I have been renting and looking around trying to decide what to buy. Sydney is just so expensive now that I can really only afford a two-bedroom unit. I need a house so I can keep my dog but houses cost at least $500,000, which is just too big a mortgage for me to take on given that I am single.
“I am looking to buy a property in the country – somewhere fabulous so I can grow olives and eventually set up a business where I can work half the time in the city and half the time in the country. Property prices have just gotten so out of hand in Sydney that it is actually cheaper for me to buy a property in the country for around $300,000 and still pay rent in Sydney than take on a massive mortgage to buy a $500,000 house.
“It’s harder for single woman to buy property, because you end up competing with couples who have two incomes and can afford to borrow large amounts to pay for a $500,000 or $600,000 house.”