Australian house prices are now among the most expensive in the world: Sydney and Melbourne have historically led the way when it comes to pricey real-estate, but other states are now quickly catching up. What used to be an achievable goal for most Australians – to work hard and save hard to buy a home – has, for many, become nothing but a pipe dream.
During the past 18 months many people have, for various reasons, faced different challenges. Priorities, lifestyle and financial options have shifted and been reassessed. A ‘tree change’ or interstate move has now become a high priority amongst homebuyers. The number of people now searching for a new home and way of life in another state or in regional towns has dramatically increased, pushing the prices of once-affordable homes beyond the reach of the average Australian.
This trend towards a slower, more fulfilling and affordable way of life does have its positive side. The increased demand for property within towns which may not have been previously considered adds value for current and incoming residents in several ways: more residents means more money and investment into key areas such as schooling, healthcare and infrastructure.
Whether your dream is to buy, or you prefer the flexibility of renting, the approach remains the same: plan ahead, save and get a handle on your budget.
Here are four factors to consider to help you find the best option for you.
1. Incidental costs
One of the major appeals of renting is the lack of responsibility (financial and personal) for any incurred costs of house maintenance and repairs. Homeowners need to invest money regularly to maintain the value of their property. While some things that can go wrong are relatively inexpensive to repair, such as a new tap or broken locks, more costly repairs, such as a damaged roof or a bathroom leak, can be a major financial blow.
However, homeowners who consistently maintain and update their homes will see the value of their home increase over time, so the financial and time investment is worthwhile.
If you rent your home the cost to repair anything broken or damaged may not lie with you. However, you often don’t have control of a timeline for repairs, as you will need to rely on the owner or agency caring for the property.
2. The environment
There are pros for both renters and buyers when considering the environmental impact of your home. Homeowners who build energy-efficient homes, invest in solar panels and plant native gardens can reduce the amount of money they may then need to spend on maintenance. However, the permanence and cost of a mortgage can see people living for longer-than-necessary in houses bigger than they need, or further out in the suburbs which may increase their commute.
For those renting, the flexibility of being able to move as circumstances change means you can choose a home that fits you and your family’s current circumstances, thereby reducing your footprint by living in smaller homes, less travel time and sharing amenities.
3. The flexibility
Renting a property — rather than buying — provides more than one type of flexibility. The first is your physical location. Renting allows you the option of moving more easily from city to city — or even suburb to suburb — depending on what is required for work. It can open up other options for you and your family, to access the schools you would like your child to attend.
The second type of flexibility is in regard to your investments. Rather than tying your money up in a mortgage, you can choose to diversify your investments over a number of different opportunities. This gives you the freedom to move your money around for the best returns. This might be particularly appealing if you are living in an area where property prices are much higher than you can afford, leaving you at risk of losing money if prices fall.
4. The pros and cons of saving
The main advantage of a mortgage is it forces you to save — you will need a sizable chunk of savings to get started on the property ladder. However, property prices, upkeep and management costs are variable and uncertain. On the flip side, you will have an asset which is generally stable, and, on the whole, will increase in value the longer you keep it.
For renters, smaller upfront costs allow you to have a home and take a long-term approach to saving and investment. You’ll also have peace of mind about unexpected costs such as repairs.
Whichever decision you make, now or in the future, you can be reassured that many others have made the same choice and been perfectly happy.
To ensure you’re following the best financial path for you and your needs and goals, it’s worth discussing your finances with an expert who can map out a plan to suit you.
All the best dreams start with the first step. Saving for your dream is the next, and best, step you can take.
