If you had $1 for every article written in the last week about how Millennials are locked out of the property market and are hating their Baby Boomer parents, you might have enough to afford Sydney’s $1.15 million median house price.
Unfortunately that isn’t an offer which is out there, but there are steps you can take to get on the property ladder if you are a Millennial, and it doesn’t necessarily mean raiding your superannuation to get there, even if you could.
Here are five suggestions:
If you have a decent deposit, buy somewhere where you don’t want to live
Look at it as a pure investment, and rent the lifestyle where you want to work and live. If your research is good you can probably find something good, even in another state, which will give you a good rate of return. And if you do this, stop whingeing about negative gearing and take advantage of it. Other people make use of it and its not going away any time soon.
Buy with family or friends
Yes, this can be tricky, but if you get all your agreements sorted out first this can be a good way to get a leg up. If you are in a relationship and are both working, then two people saving for a deposit are obviously better than one, but not everyone is in that position. Next time the BBQ talk turns to how you’re all locked out of the market, suggest clubbing it together and see what reaction you get. Banks recognise these co-borrower arrangements, and take the income of all parties into account. It would be like a big share house in the fullest sense, with everyone having a share! Desperate times require desperate measures, and this could be a way forward.
Buy into property, literally brick by brick
There are some interesting investment schemes around, set up on the unit trust model, where you can buy into a Sydney apartment block purely as an investment. Consumer research firm Canstar recently gave its innovation award to startup BrickX, recognizing the company for lowering the cost of entry into the real estate market for retail investors. BrickX recently sold shares in a Bondi apartment, and people could invest as little as $100 for one share.
The Bank of Mum and Dad
Your parents don’t necessarily need to stump up all the money for the deposit, but they can help by going guarantors. Banks look at the Loan to Value Ratio (LVR), which is the ratio between your deposit and the price of the property. If your parents act as guarantor, you can borrow up to 95 percent of your loan without having to pay mortgage insurance. Guarantors become responsible for the loan if you default, so it might require some honest discussions around the family dinner table before getting into this.
Think like an ex-pat
Part of the Millennial rite of passage is to spend a year or two working overseas, and this can really work well in terms of getting on the Australian property ladder. Firstly, you are probably earning more than you would in Australia, but more importantly mortgage interest rates in centres such as Hong Kong and Singapore are significantly lower than they are in Australia. For example, mortgage rates offered by Australian banks operating in Singapore are barely at 1.5 per cent, compared to around 4.5 to 5 per cent in Australia. That is a significant differential and can mean those ex pat years are not only fun and good for your career, but can give you a boost on the property ladder too.