Its My Home : 2017
41 IT’S MY HOME IT’S MY HOME I In January 2006, the median Australian house price was $492,446. The standard 20 per cent deposit required would have been just under $84,000. Ten years later, with median property prices increasing almost 50 per cent, the median house price in January 2016 was $721,262, meaning the standard 20 per cent deposit required is just over $145,000. There is always plenty of debate in the media and on the internet about renting versus buying and which makes the most financial sense. As property prices continue to rise, many potential homebuyers are concerned that they may have missed their opportunity to get onto the property ladder altogether. However, this need not be the case. So which option is better? Should you continue renting or look to purchase a home? Let’s see how the numbers stack up. The first is to delay purchasing their home and continue to save for a few more years. The second is they could purchase their home now using Lenders Mortgage Insurance (LMI). Let’s look more closely at these two scenarios. Both scenarios are based on the couple having $3400 available income per month. Currently they are paying $2400 in rent and saving $1000 per month. Firstly, let’s look at what would have happened if Oscar and Mia had decided to delay purchasing their home and continued to save for a 20 per cent deposit. ➤ It would take Oscar and Mia a further eight years to save a 20 per cent deposit based on current savings of $1000 per month ➤ Total rent paid over eight years $230,400 (based on current rental $2400 per month) ➤ Total additional savings $96,000 (excluding interest) ➤ Based on the initial property value of at $575,000 and average growth of four per cent per annum, the property would now be valued at $786,927 ➤ This means the couple now need $157,385 to have the 20 per cent required deposit Now let’s look at what would have happened if the couple had bought their property using LMI, rather than waiting to save a larger deposit. ➤ LMI premium paid $23,298 which they capitalised into their loan, making the total loan $557,663 ➤ Over the eight years, the couple have reduced their home loan balance to $453,421 ➤ Based on the initial property value of at $575,000 and average growth of four per cent per annum, the property would be valued at $786,927 ➤ This means the couple have increased the equity in their home by $316,169 to $333,506 By using LMI, not only have the couple owned their own home for the past eight years, they are better off by approx. $176,000 than if they had waited and continued to save. Oscar and Mia are buying their first home and have found a property valued at $575,000. They have managed to save just over $62,000 for their deposit and fees. Their lender has advised that as they don’t have a 20 per cent deposit, they have a couple of options to consider. AS HOUSE PRICES CONTINUE TO RISE, IT OBVIOUSLY FOLLOWS THAT SO DOES THE AMOUNT OF THE DEPOSIT REQUIRED BUY OR RENT? We run the numbers 40 ➤➤ Pictures:Shutterstock.