Consumer behaviour around the world has changed dramatically in recent years, including real estate. In Australia, many agree that times have changed for the real estate industry and what was once an easy undertaken had in fact proven to become a bit more challenging, especially for new or first time home buyers.
One major factor is that owning real estate property can be quite challenging when it comes to the affordability of mortgage deposits as a result of higher property values.
The rising value of real estate property
While dwelling values have dropped in the last few years, housing has become more expensive. However, that is not the sole reason behind it nor is it the only factor that affects the market.
Here’s why. Back in the 1990s, interest rates were high and made buying a house more expensive and difficult because mainly due to the lack of available money due to high unemployment figures that went up as high as 11.5%. During that time, the male workforce participation rate was 73.8% and 51.9% for females.
Back then, there were way fewer females employed in the workplace and a single-provider income was not enough to pay for a house, let alone mortgage deposits.
Additionally, interest rates were higher and went to as high as 16%, compared to the standard variable mortgage rates of only 4.94%.
With unemployment and interest rate figures, saving up for a mortgage deposit and deciding to buy a home was not a feasible proposition for a single-income family and required combined incomes from two or more income providers.
How about today, is it any easier?
Not exactly, because there are a number of factors that affect the real estate market. While interest and unemployment rates have gone down significantly in recent years, then here comes inflation that has contributed largely in making dollar values drop.
Inflation in the last several years has reached record low levels compared to the last two decades, where it was much higher.
With low inflation factored in together with skyrocketing property values, low-interest rates for savings, and uncertain employment situations, the formula makes it all the harder to consider setting aside a budget or savings for a mortgage deposit.
Is it possible? YES!
But in spite of the challenging prospect of setting aside money for a mortgage deposit, there’s always hope that these factors in play will spur governments and private sector involvement to change the economic tides and allow for better affordability in the near future. And, in fact, it has.
This is where the hard work starts for those who want to commit saving up for a mortgage deposit. There are basically three practical ways to plan and strategise around it.
Look into your spending habits and activities
People often work hard to earn money, but have they ever thought about how and where their income is spent? Being able to track your spending is the first step to jumpstart your plan to set aside your mortgage deposit savings.
Listing down your income and compare it against your basic expenses, credit payments, recreation, and lifestyle can give you a better understanding of how your money is being spent.
Should you go ahead and pursue your desire to save up for a house deposit, it will be a good practice to set a minimum share of 20% from your income to save for it. This helps you get a grasp of how your money comes and goes.
By tracking your spending, you will be able to know how to budget effectively and be able to determine if you need to cut back on some of those to help you get more value out of your income.
Make a conscious effort to settle your debts
Making a few lifestyle sacrifices to allocate more money for debt servicing can provide you with long-term gains and provide you with more financial freedom the soonest.
Doubling up your loan repayments can help you shorten the time for loan and credit repayments, at the same time, give you more opportunities to pay-up your debts since interest rates can be adjusted lower for advanced payments or even get additional discounts for higher debt repayment amounts.
Remember that a longer payment term means compounded interest rates over time, where you can save a lot by getting it settled as soon as possible.
Develop and stick to your budget
A lot of people find it difficult to create and follow a set budget, nonetheless, it is still one of the best ways to keep track of your income, expenses, and how you may be able to cut back on spending and allocate it to more pressing and important expenses or regular savings.
Most people find the 20/30/50 budget rule useful and practical. This means that they allocate 50% of their income to basic necessities, 30% to material or lifestyle spending, and 20% for savings.
You can also try to reduce your lifestyle or material spending by cutting down on grocery spending, dine outs, or electronic devices then channeling it to savings.
Increase your savings, whenever possible.
There are a lot of practical ways to increase your saving capacity. For instance, you may want to cut back spending on groceries by planning out your daily meals and eliminate food wastage which can cost money.
You may also want to cut down on your utility bills by employing smart energy conservation at home or commute to work on some days to save on fuel. When you combine all these, you could set aside a few hundred dollars a month to your savings fund.
Always remember that while it may seem daunting and difficult to save money for a house mortgage deposit, bear in mind that through a careful assessment of lifestyle and regular spending you just might be able to realise your desire to save up money to invest in the real estate property of your dreams.