Hello and welcome to It All Adds Up the podcast where we chat about money, how to get it, how to spend it, and how to invest it. I'm senior economics writer Jess Irvine, and you're listening to our summer series, where we're replaying some of our hottest hits to help you get in shipshape financial form for 2023. It all adds Up will resume normal programming in February with a brand new season full of money saving tips and insights.
So until then, sit back, relax and enjoy. Hello and welcome to It All Adds Up the podcast where we chat about money, how to get it, how to spend it, and how to invest it, and seek to demystify the world of finance and investing. I'm senior economics writer Jess Irvine, and.
I'm money editor Dom Powell. And for our first episode, we've decided we may as well just dive into perhaps the biggest topic in personal finance, the very vexed question of home ownership. We're going to take a look at how much it costs to buy a home in Australia these days and strategies to help you or a loved one get a foot in the door.
We're also going to be sharing some of our own personal stories of getting into the housing market and things that we wish we knew before taking the plunge. And later in the episode, I'll be offering my budget tip of the week, which is going to be a regular feature to help you cope with the rising costs of living.
But first, just a reminder that the information we're about to discuss is general in nature and does not take into account your personal financial situation, goals or objectives.
Yep, good point. Now we don't know each other too well just yet. But I knew I was super impressed with you when I'd heard that you'd bought your first home at some tender age. I'm not even sure.
I was 23.
23. And I think that's quite impressive. And I think that is quite anomalous in today's market. So I just wanted to ask you, you know, what was your experience of purchasing a home? How did you decide so early in life that you were going to even try?
Well, look, my experience is quite unique. Definitely not the experience of of most people out there. The reason that I, I owned property at the tender age of 23 is because I got quite lucky with a little thing called cryptocurrency.
You went to the moon?
I did. I went to the moon. I was at the right place at the right time. I do not profess to be an investing genius. I just got curious in the world of crypto at the start of 2017, rode the market to a decent point, sold out and made a decent enough enough money that I could start actually thinking about home ownership. And before that it wasn't even on the cards. It wasn't even something that I
was thinking I would do anytime soon. But after that, you know that that fateful year I was sort of in a position where I could start to think about actually buying a home. And then in about 2018, 2019, I started to look and bought a building, an apartment in in Melbourne in 2019.
That's funny because that ended we ended up buying in the same year because I bought my first home in late 2019. So snap at the tender age of about 39. I think I was.
Still a tender age.
Did you turn up to a whole bunch of auctions and get knocked back? What was it like for you?
Yeah, well, it was interesting. I am. So I should also add, because I don't want to be one of those man buys home at 23 from crypto savings like that is true. But I also had help from my parents, so there was a bit of both. Like I don't want I just want to make that very clear. I'm not, you know, some sort of 1 to 1 in, but
I went to a lot of auctions. My first, the first one I bid at, I was quite demoralised to find out that the sort of price that I was hoping to to get the place that was just eclipsed very, very quickly. But in the end, I bought my home in a pretty weird way. I put it in an offer and then a number of other people put it on offer and we ended up having a boardroom auction.
What's that?
They sit you around in the boardroom of the of the Real estate agents office, and there was about three other people there for the people there. And you have an auction. But instead of being out in the street, you just sitting there at the put in the boardroom. It was bizarre. It was such a strange experience. But in the end I won that. So yeah, Then I bought my place at the end of end of 2019.
Yeah. And I hope by sharing our stories of how, you know, we've got into home ownership, it's not I'm just incredibly aware of the privilege that I had in sort of having a good, decent income to accumulate my own savings. I didn't have any sort of cash from mum and dad, but I did have them go guarantor on my loan, which is something which we'll discuss later when we get to sort of some potential solutions if
people are looking for ways to get in. I had my deposit ready to go for a couple of years actually, and I was just watching the market and I actually spent a lot of time on the sidelines just, you know, prices would go up. So I'd go, Oh, that's okay. I can live in an apartment. That's okay. Maybe, you know, I can just not have a balcony. And I kept trying to adjust down the, oh, I can buy further out. And then really just at the end, sort of had to go to the bank and say, what is the
maximum amount you will lend to me? Like it's getting away from me. And then I did sort of end up looking for slightly more expensive properties. I paid about $870,000 for a two bedroom apartment. So in 2019, and I think the bank was going to lend me a million plus, but I sort of just decided that wasn't necessary. I did get up. We did an auction. So the week before I bought, I sort of turned up and I was have my maximum bid. They say you should write it on a piece of paper in your pocket.
So I put my number and then during the auction, I proceeded to bid substantial proportion above one number as the do.
Yeah, I think that's just the way it goes for any auction, right?
Exactly. And the successful bidder was an investor. Basically the classic story of sort of just having way more money than I. So then I started looking about a suburb out from where I was originally and happy Days. So the point of sort of picking this is our first topic, I think in my mind is that really home ownership, you know, the decisions that you make about property will be one of the biggest factors that will influence your
future financial capability and your wealth. It's just so, so key.
Absolutely. Having a mortgage is sort of just makes you think about everything differently, I think, in terms of your personal finances. Like, you know, just when you have such a large asset in your life, I guess it just changes your perspective on everything. So I think you're right. It is it is a massive decision. And, you know, it does sort of make a very big impact on the way you think about money.
And it's also probably the most expensive thing that you're going to have to pay for throughout your life is figuring out. Are you renting? Are you buying? And what's your strategy there? You know, when you retired, are you going to own a place outright or will still be renting?
It's just so important. Now, look, preparing for this episode, you've you've been out there and you've been researching some pretty scary statistics just to give us the current state of play of where houses are at with home ownership. So do you want to run us through a few of the very scary stats? Yeah, it's not gross.
It's not great. So something that did surprise me, which is the first statistic, which is that two thirds of Australians own their own home, which I thought might be a bit lower, and it used to be a bit higher. It used to be about 75%, but that's fallen over the last two decades to 66%. So, you know, it is coming down, more people are renting. But that sort of tells us that houses are expensive. We knew that this is not this is not surprising and have become
much more and significantly more expensive over time. So in 2000, you could buy a house in Sydney and this is like a house, not a not an apartment for just under $300,000 and in Melbourne, just under $200,000. And that was at the turn of the millennium today. That's at about 1.6 million in Sydney and about 1.1 million in Melbourne. And the median across all capital cities is sitting pretty much exactly at $1 million to buy a house.
A freestanding house, a.
Freestanding house, obviously different for four units. But as most people think, you know, there's a sort of home ownership dream is owning a house typically. So that's that's sort of the reference. So that's a obviously, you know, an astounding rise in property values over I know obviously two decades is a long time, but that is a massive increase in the price of a property.
Yeah. And way out of line with wages growth, you know, as a multiple of incomes. It's just it is to be stably got much much harder.
Yeah nothing else you know few other things that have risen as much as you know as property prices have in the last 20 years. So what that sort of means for home owners who are trying to get into the market at the moment, is that to buy a house, you're looking at a deposit of at least $200,000. That's a lot of money. You know, that's it's an immense amount of money.
To have the full 20% deposit, to have.
The full 20%. Sorry, this should be clear.
And is it that it's not hilarious? It's very painful that so we're saying that's how much she needed to buy a house in 20. In 2000 and now that's how much you need for a 20% deposit. It's just gobsmacking.
Exactly. So what what could have bought you a full a full on house the whole hog back in back in 2000 now just gets you a measly 20% of it. So yeah, I think it's pretty clear to say that that the odds are stacked against young homeowners. A first home owners, young or not, it's a huge amount of money to save. And the stats are, you know, Australians save on average about $700 a month. So you're looking
at maybe 8 to $10000 a year. So that's looking at, you know, for one person, 20 ish years of saving, if you're just saving straight off your own back to afford a home deposit, That's fascinating.
What's the source of that?
So that's from some savers savings surveys I found online from Finder. But I've checked a few other places and that's pretty accurate in terms of the ABS data as well as on sort of, you know, the amount that people save per year. Obviously, the older you are, you save more, the younger you are, you save less. But
that's the average sort of thing. So obviously these these sort of figures change if you're saving for someone else like a you on a partner want to buy a. That sort of drops drastically, But you're still looking at a good number of years if you want to sort of go from zero to a house deposit. And I suppose this is where we can come in and look at what you can do to cut that period of time down or sort of circumvent it or whatever the possibility is.
To help, because I think people would hear that. And I think a lot of people have just kind of given up and just gone. It's just not for me, you know, I'm going to have to look at a rent vesting sort of strategy where I'm investing somewhere else or.
Just rent full stop and not even invest, Right. Yeah. You know, a lot of people can't afford to do investing on the side. So they're just sort of resigned themselves to renting for the rest of their lives.
So yeah. And meanwhile, the rental market is getting tighter and people are getting squeezed there. Yeah, I mean, I sort of have done a lot of looking at that issue of renting versus, you know, buying and whether which one's appropriate. And I did use to be sort of I'll just be a rent. VESTER But I think I was just putting off city because I was doing the renting, but I wasn't doing the vesting, investing part of it. The common.
Common scenario for many people in the in the renting bucket and.
I think the sort of the having had a mortgage now and it's sort of it's enforced version of that that you know you it forces you to put aside, you know not only you're paying for the interest obviously on the loan that you've taken out, but the any principal you make is is a form of investment because you're increasing your ownership stake in an asset that you've purchased. And the ability I mean, there is nothing like property
for banks to lend you money. So the ability to leverage and purchase an asset upfront of which you would enjoy any percentage gains in a tax free environment is pretty unparalleled. So when I've looked at renting versus, you know, buying a property to live in sort of comes back to that leverage thing of how much you'll be able to shackle yourself with one of these super sized mortgages, you know, which hurts on the interest front, but also gives you access to ownership of a large asset earlier
in your life. So I am all about telling people that we've rigged the system such that property ownership is is structured in a way that if you can get on there, that hopefully will mean a good financial future for you, assuming you don't borrow too much. So whilst we acknowledge there are so many challenges out there, I really, really want to help people who are on the cusp or who might be close if they just did a few of these things. Yeah, we could maybe will help.
Maybe we can help if we get there.
The first thing I think is that we've we've spoken a lot, you know, just in this podcast so far about the 20% deposit and you don't need 20%. You can go in at less, you can come in at 10% or under, but you'll have to pay what's known as lender's mortgage insurance and have like, how much is that? Just like what? What is what's the sort of the average amount that you would expect to pay if you're paying lenders mortgage insurance?
Yeah, I have in my mind sort of about $10,000 being on a typical or a median sized home. It depends and it varies. But yeah, that's the insurance. You pay not to cover you in any capacity but to cover the bank. If you've borrowed on a lesser than 20% deposit, there's less equity that you have in the property. So, you know, the lender actually takes out this insurance to protect them. Yeah. And it can be a really high
upfront cost. It is something you can build into your loans, so you just borrow that extra amount to cover it. And then there's also a government scheme which I think we'll get to. But yet number, you know, we've got a list of five solutions that we're going to offer to the people through number one, it doesn't seem like much of a solution, but to have less of less than 20% don't. If you're sitting there waiting to get your 20% deposit, for many people, the 23 years, that's
just not you're not going to get there. And it just seems to be the way things are moving that the system is encouraging you and facilitating more people to get in earlier with smaller deposits, which is kind of scary when house prices are falling by 30 to absolutely 20%. Yeah.
And you shack yourself up with a with a big mortgage and then, you know, interest rates go up and you can't repay it. Like there's a lot of it's not a it's not an elegant solution going in at less than 20% it is an option.
But I think it is important for people to know that is what everybody else is doing. So, you know, absolutely you're sitting there waiting diligently to get your 20%.
And like another option I'll second offering, which is doing similar to what Jess and I have done. And instead of looking to buy a house, looking to buy an apartment, so the median price for a per unit across all capital cities is about 600,000. In Melbourne, it's less than that. In Sydney, it's quite a bit higher. And you know, apartments are really nice. I love my apartment. I've got to have a great time.
I love my apartment too. And I tell people, don't forget about. Ground floor apartments where you sort of all of us, apart from all the people living on top of you, it feels like you you know, you can have access to a bit of a garden as well. Yeah. I mean, as a solution, again, it's, you know, it's not what you dream of. You want the quarter acre block particularly. Got, you know, I've got a kid and I sort of it took me a lot of mental
adjustment to go, That's just not going to happen. I'm not going to live in the sort of house that I lived in when I was a kid. And I think mentally adjusting to that can be hard because you feel like you want to provide that. But lots of great people, including us, are living in apartments. The only thing to watch out for that is strata fees. And I think people don't necessarily factor that in is which is a large ongoing cost.
What are your strata fees each year in Sydney?
I'm paying about a $9,000 a year in strata fees. Oh.
9000. I'm truly shocked.
The building that's got a lift, it's got communal gardens. We've got a pool, which is actually lovely, but you know, you're paying the cost. And I have been meaning to do the sums. I don't know if you bought bought a freestanding house, whether you would be spending $9,000 a year on upkeep. What are your fees?
1400 a year.
Oh, goodness.
Yeah. So.
Wow, maybe that's a Sydney, Melbourne thing because I'm.
Guessing it might be. Also, I've only got 14 people in my block. Like, it's not a big it's not a big, big apartment. No lists. No lists. It's got actually communal gardens, it's got carports. It's like pretty low key on the maintenance front. So that's that's obviously the difference. But I'm not sure if that's, you know, seven and a half thousand dollars difference. That's a phenomenal amount of money.
Yeah, I wish I had paid a little bit closer attention to that, actually, the ongoing cost, you know, because I'll own my apartment outright so there will be no mortgage, but when I'm retired, I'll still have this large ongoing cost. Yeah. Anyway, so just to take that into it, just take.
That into account. What's our next tip?
So solution three and this is what I wish I'd known, is that don't just sit there kind of thinking and wondering. You have to actually start going and talking to banks and to mortgage brokers pretty early on in the piece. And actually a large part of the education that I got about the process of getting a loan came from literally one day I walked into three different banks on the high street and just, you know, can I have
a loan? And, you know, I'm a financial expert and it's just you have to go through that process because they then start to ask you all these questions like, okay, well, what's your income? What are your expenses? You know, and that's how they determine how much surplus cashflow you've got. And at the time, I was not the budgeting wizard that I am today. If you see.
My famous, famous budgeting website.
Instagram account, my money with Jess, I now keep a almost unhealthy level of tracking of my expenses. So now I know. But they will get you really thinking early on about focusing in on, you know, what's your income, what what are your expenses? Where could you trim back? You know, and I remember when I told one banker, oh, yes, I spend about, you know, what, three or $4,000 a year on hair treatments. And he sort of gave me
the one I raised and went, Do you? Well, you don't now, you know, if you want your mortgage, you're not going to, you know, be able to you have to actually, you know, and I had to sort of live to a more modest lifestyle to afford my loan than I was previously. And know if you do go and have that conversation about your borrowing capacity, it can help you to sort of bring back to reality, you know, the some of the sacrifices that you probably will have to make.
Though I think we should make it clear that we're not telling people to stop eating avocado toast.
No.
No, that's not part of that. You will never hear that on this podcast. We're never going to stop telling you to stop having your brunches. Yes, fine.
Brunch is.
Allowed to have.
It, had a life. Maybe don't have that every day.
Have it felt that if you were having an every day, I'd probably tell you to stop just from like a health point of view rather than like a finance point of view. I mean.
Nutrition.
Yeah. Would put them on nutritionists hat and say to stop eating the toast. Mix your diet up mate.
Best healthy fats out of an avocado. We digress.
We digress. Another sort of and this is this is the one that you sort of loathe to mention, but it is sort of the reality for so many people in Australia, which is the bank of mum and dad, right? Yeah, it exists. It's big. It offers a lot of very generous and low interest loans to a lot of people that a lot of people have to get money from their parents or they have to have their parents guaranteeing their loan. Like, you know, we've got two examples of
either situation here, right? So it is sort of unfortunate that that is the scenario that we're in in Australia, where the generational wealth is such that that you have to rely on your parents to. I had the money for your house, and you then might have to do that for your own kids. But it is a reality for many people who are in the position that where their parents can do that. And you know that some it is a lot of ways to get into the property market.
Yeah, it makes me really sad. We've designed such a terrible system that we've let house prices inflate away. And if you didn't carefully select your mother and father at birth.
Which we all.
Did to be someone who owns property and, you know, in urban areas. Yeah. The idea I hate giving this piece of advice and I was very loathe to get my own parents involved. I was like, No, I should be able to do this by myself. I want to be able to do this by myself. I was really worried about having mom and dad on the hook because they went guarantor by loan, but it is a conversation worth having. If your parents do own property, they've got
substantial equity in their home. You know, they might not have the cash to actually stump up to help you with deposit. But there there are parental guarantees. And what was reassuring to me and it's just worth talk to a mortgage broker, talk to a banker about how to
use these sort of guarantees. They weren't sort of on the on the line or on the hook, if, you know, if I didn't pay my loan, they were going to have to pay back my whole loan, but only for the missing amount that I had in my deposit versus having the 20% deposit. They went guarantor on that sort of smaller amount, which meant that I avoided paying lenders that lender's mortgage insurance that we spoke about.
Okay, So you can sort of and organize it so it works in a different way.
Yeah. So I think I mean, I could have borrowed with I think I had about a 15% deposit at the time and I could have done it and just paid lender's mortgage insurance. But it did, you know, having that guarantee meant that I avoided into that, that part of the cost. So it's not that I couldn't get it without the guarantee, but it did help me save save a little bit upfront. And then actually what happened is after in the year after I bought the the value of the property went up and then I was
able to release them from the guarantee. Once your loan to value ratio is under the 80%, then you can release them. So that was a lovely moment to be had to right release I release you back into the wild, you know.
Not they're not part of this.
So yeah, I'm an independent lady all again, all over again. So there are the bank of Mum and Dad is not totally flush with cash. There are other ways that, that they can help. And you know, if you have access to that, it's a conversation worth having.
Yeah. And also, again, you know, this is another sort of thing that a lot of people are very privileged to have, but a lot of people are not. So exactly. Obviously that piece of advice is not apply to everyone, but this piece of advice does apply to everyone, which is there are a number of first time buyer schemes out there. There was a I'm not sure if people remember the election. That was a bit of a that was a bit of a topic. So we have we have some sort of some some fresh home schemes that
are available on the federal one. There's 35,000 places a year. They allow you to buy a place for as little as a 5% deposit and they'll sort of back you like the government will back you.
Yeah, they essentially become the bank of mum and dad for you by going the guarantor. It is income tested. Yeah. For people to be aware of. But yeah, that's the first home deposit scheme which seems to be a new feature and a feature that's going to stay in the landscape.
Absolutely. But obviously the caveat with that is that you have to apply. It's not for everyone and there's only 35,000 every year. So, you know, it's it's a bit of a limited scheme, but it is a good way to get yourself into the into the property market with a very small deposit. And then obviously on top of that, there's all the state based first home buyer schemes, which are pretty similar as far as I'm aware. Often it's
a grant of about $10,000. They'll waive stamp duty up to a certain value of the property and then over that they'll reduce the stamp duty like I didn't pay any stamp duty on my place, which was, which was good.
Because it was under the threshold.
Yes. It was under 600,000. Yeah.
And then the final one we wanted to mentioned was the first home super saver scheme, which I remember when that was invented back in the day. I'm showing my age now, but when Kevin Rudd got elected, you know, housing affordability was a big issue. How long a good Kevin I seven. So that's 15 is still a big issue.
And this was their sort of offering which has since been expanded, that if you have a plan and if you're ahead of time, you know, a couple of years down the road before you want to purchase, you can make voluntary contributions to super up to a $15,000 a year and then capped at a sort of $50,000 total that you can put into super and take out again for release under the first Home Saver scheme. The advantage of that is that you pay lower tax on that money.
So rather than be taxed at your marginal rate, you get to save in this lower tax environment of super and the that that can really you know, the amount of tax that you save adds to the deposit that you can then. A mess.
Yeah. And if the market's having a good year, make it a little bit of money on your. On your deposit, too. Yeah.
And you just hope it wasn't sort of the last year or. Yeah, you sort of want to be looking at us sort of a couple of years time horizon, I think. But if I have my time again, you know, and I got my act together a bit earlier, that's definitely something I would have looked at.
That scheme made to I think about none of that. I would have put a bit more cash in. So something like that. Well, look, we hope that that sort of helps a little. Obviously, that doesn't erase the massive, overarching problem of housing affordability in Australia, which is something that no one appears to want to talk about or do much about. So moving on from that, Jess, we do have your budget tip of the week. Is it related to housing?
It's not.
Well, that's probably refreshing, to be honest.
Unless you have home insurance. My budget tip of the week is to live your life to excess.
Okay, great. You know what I said about avocado toast earlier? I'm just going to go grab some.
Just go eat. No, this is to look at your excesses on your insurance policy. So everyone's tightening the belt. Starting to review, you know, household expenses. Something that I've done throughout my personal finances is to go through all my insurance. So car insurance, health insurance, home insurance, and a strategy that I have in place because I know that I do have an emergency savings fund. I've got my $36,000 that sits there, which I've calculated is roughly
my six months of basic living expenses. So I know that if I do need to make a claim, if I agree to a higher excess, which means that I agree to pay a higher dollar amount out of pocket in the event that I need to claim that my premiums go down. So with private health insurance, they recently increased, you know, the excess that you're allowed to accept up to 750 for singles and 1500 for couples. And so
I just go for the biggest excess possible. And I know that I've got the savings there to pay it if I need to pay it out of pocket in the event of a claim. But I have saved so much of my premiums on across all of my insurance is that it's probably already made up for whatever excess I would need to pay. And you could be unlucky, unfortunately. And you know, maybe you have a claim fall soon and you've, you know, agreed to the bigger excess and
that's not going to work out for you. But it's definitely something you can tinker with because those are some very large parts of household budgets and insurances, particularly private health.
Premiums, are one of those things that I think when I bought insurance for the first time, like I bought a car for the first time last year and I was like, I don't really understand this. I'm just going to set it at a number that feels about right. Like I didn't even I don't even think about it. So I should I'll I'll go back and review my excesses and be more excessive.
Be more excessive.
Well, I think that's probably all we have time for this week. But in future episodes, we would love to answer your questions, so please email them through to. It all adds up at nine. Accommodate a few or even send them as a voice memo so we can play them if a live. That's alright with you because we'd love to hear from you.
This episode of It All Adds Up was produced by Chee Wong. Information discuss is generally nature and does not take into account your personal financial situation, goals or objectives. You should always do your own research or get professional advice before making any major financial decisions. If you like today's episode, hit follow in your podcast app. Leave us a review and recommend it to all your friends. You can submit your listener questions in text or audio format too.
It all adds up at 9:00 for you. Thanks for listening.