The Great Australian Dream is still alive for millennials in Australia, with 94% citing homeownership is important to them.
A recent Genworth survey revealed that a majority of millennials want to buy a home as it provides them with stability and security.
Unfortunately, for 58% of millennials surveyed, the homeownership dreams still remain unfulfilled as they cannot afford the deposit for a home loan.
However, the dream is now closer to becoming a reality, thanks to the First Home Loan Deposit Scheme.
Millennials applying for first home loan deposit scheme
The nationwide First Home Loan Deposit Scheme that came into effect in January 2020 has turned millennial homeownership dreams into a reality.
Of the people that have applied for the government scheme, 34% of them are aged between 25 and 29 while 76% are made up of millennials aged between 18 to 34.
Millennials represent 3,055 of the first home buyers who are fulfilling their homeownership dreams sooner.
In every city except for Sydney, the people applying for the scheme were under 30 years old.
Half of those who are approved are planning to buy outside of the three big capital cities, due to the price caps.
The scheme is clearly helping millennials get into their first home sooner as research undertaken by the Housing Industry Association (HIA) in 2018 showed that over 92% of renters aspire to have their own homes.
What is the first home loan deposit scheme?
Under the scheme, a first home buyer with at least a 5% deposit can get a home loan, without paying Lenders Mortgage Insurance (LMI).
Normally, when borrowing 80% of the property value, you will have to pay a one-off LMI fee, since you’re considered a high-risk borrower.
For instance, if you bought a home in Melbourne worth $681,925 and you need to borrow 95% which is $647,829, you pay between $29,217 to $32,851 in LMI fees.
So, millennials who applied for the scheme are saving thousands in LMI fees and getting into the property ladder sooner, since it takes on average, at least 8.7 years to save up a 20% deposit for a home loan.
The plight of millennials
CoreLogic’s Perceptions of Housing Affordability revealed that while millennials are most passionate about buying a home, they make up the smallest percentage among other generations who actually own a home.
- Only 30% of millennials own property, compared to 54% of Gen Xers and 68% of baby boomers.
- 90% of millennials have concerns about their ability to afford a property, compared to 86% of Gen Xers and 64% of Baby Boomers.
- Saving a deposit is the biggest obstacle for both Gen Xers and millennials, while Baby Boomers are concerned about stamp duty.
The report further revealed that the ‘cubby house’ syndrome is intensifying, as 63% of young Australians are opting to live with their parents longer since they can’t afford a home.
Tips for buying a home as a millennial
Millennials have it tough in a market where wages and income and stagnating, while property prices are on the rise.
As a millennial, buying your first home isn’t impossible, but it can be hard.
Therefore, we’ve outlined some millennial mortgage tips that you can follow before you start applying for a home loan.
- Maintain a budget to determine your saving habits.
- Try to pay off your debts before you apply. This includes your HECS debt and credit card debt as well.
- Get your credit score in decent shape and correct any errors that appear on your credit file You can get a free copy of your credit report from the three major credit reporting bureaus of Australia which are Equifax, Experian and Illion.
- Get a stable job and have a steady flow of income so you can show lenders you can earn enough to keep up with monthly repayments.
- Lenders and banks look at savings statements to ensure there’s consistency, rather than a large lump sum deposit.
- Amass as much savings as you can. Even if you have saved up at least 5% of the property value, you could get onto the property ladder by paying Lenders Mortgage Insurance or getting a guarantor loan.
- Lower your entry home requirements. Look for properties outside of the three capital cities i.e. Sydney, Melbourne and Brisbane, where the property prices are significantly lower.
Start your home buying journey today
Delaying your chances of homeownership can only perpetuate the unaffordability cycle, as property prices are not suddenly going to fall over the next few years.
Even if you cannot qualify for the First Home Loan Deposit Scheme, there are a plethora of low deposit home loan options.
We’ve also created a comprehensive first home buyer guide to help you through your home buying journey.
Our award-winning mortgage brokers are here to help. Call us at 1300 889 743 or get a free assessment online.