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Market update: how home ownership in Australia is changing

By ,| 5 min read

For many, the great Australian dream is having a place to call your own. As of 2021, more than 3.2 million people across the country own a home with a mortgage. But, new data shows the proportion of Aussies who own their property outright has decreased.

We unpack how home ownership in Australia has changed, what the future might hold for aspiring homeowners and what’s being done to boost home ownership numbers. We also provide 5 tips on how you can enter the property market sooner.

What does home ownership look like in Australia in 2022?

According to the Australian Bureau of Statistics, the proportion of Aussies who own their home outright has fallen by 11 percentage points, from 41.6% in 1996 to 31% in 2021.

While the number of homes owned outright has increased by 10% from 1996 to 2021, the latest census data is based on information from 25,422,788 Aussies in comparison to 17,892,423 Aussies in 1996.

The census also found that:

  • Over the past 25 years, the number of Australians who owned a home with a mortgage rose by 98.6%
  • 31% of the total growth in private dwellings can be attributed to the increases of apartments between 2016 and 2021
  • 10.3% of Australians (or 2.5 million people) are reported to live in apartments.

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Why is home ownership dropping?

There’s a bigger proportion of homeowners still paying off a mortgage than those who own a home outright today compared to 1996.

Home ownership has dropped in Australia due to one major factor: Australia’s housing boom.

Dwelling values have risen dramatically over the past few years. Historically low interest rates and a limited supply market have been major contributing factors to high demand and skyrocketing prices.

Additionally, the spike in debt-to-income ratio and low wage growth have made it increasingly difficult for aspiring homeowners to enter the property market.

In 2021, Aussies borrowed more money for home loans than they ever have before. From January to October 2021, Aussies borrowed over $305 billion for buying or renovating properties.

As of December 2021, property debt from owner-occupied home loans totalled over $1.3 trillion. Just 10 years prior in 2011, this debt sat at only $825 billion.

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What could the future of home ownership look like?

Despite growing inflation that’s expected to hit 7% by the end of 2022, the house price boom is deemed to be coming to an end – for now.

The Reserve Bank of Australia (RBA) has been working on slowing down inflation and curbing house prices by lifting the cash rate.

Aussies have already experienced several cash rate rises this year and are expected to see further hikes in the coming months.

Economists have predicted that these cash rate rises will lead to an eventual decrease in housing prices by up to 20%.

What is being done to improve home ownership?

There are several government initiatives and programs that have been put in place to support aspiring homeowners purchase a home. These include:

1. Help To Buy program

The government’s Help To Buy program will help people who don’t currently own a land or property buy a home.

This initiative cuts down costs by up to 40% and allows lower deposits without the need to pay Lenders Mortgage Insurance (LMI).

2. Home Guarantee scheme

The expansion of the government’s Home Guarantee schemes will offer 50,000 places a year, helping over double the number of homebuyers from the previous financial year.

The Home Guarantee scheme consists of the First Home Guarantee (formerly known as the First Home Loan Deposit scheme), Family Guarantee and new Regional Guarantee.

All three Guarantees will allow home buyers to purchase a home with low deposits, as little as 2% and 5%, without having to pay LMI.

3. First Home Owner Grant (FHOG)

The FHOG was created to alleviate the impact of GST on home ownership and is a state-funded national scheme.

The grant size varies between states and territories and ranges from $10,000 to $20,000.

The FHOG is available in all states and territories excluding the ACT, which has replaced it with greater stamp duty concessions and exemptions.

4. Stamp duty reform in NSW

The NSW government announced an alternative to stamp duty in the new First Home Buyer Choice program.

Stamp duty is one of the most costly upfront expenses when buying a home, amounting to roughly 3-4% of the purchase price of the property.

This new program will give first home buyers the option to opt out of stamp duty and instead pay a lower annual property tax.

If you’re buying a home in another state or territory, you may be eligible for stamp duty concessions or exemptions.

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5 ways to enter the property market sooner

1. Take advantage of a government program

If you’re looking to buy a home, have you looked into one of the government support schemes mentioned above?

If you’re eligible, you could shave off some of the costs of buying a home and get your foot on the property ladder sooner.

2. Get a guarantor

Is mum, dad or a close relative willing and able to support you by becoming a guarantor?

Guarantor loans were created as an option for home buyers with low or no deposits. They allow a third party, typically a parent or close family member, to use the equity in their own property to secure a home loan for another person.

With it becoming increasingly difficult to save up a 20% deposit, a guarantor home loan may be an option for you.

3. Seek funds from the ‘Bank of Mum and Dad’

More young Aussies have been able to take out a home loan by topping off their deposits with funds from the ‘Bank of Mum and Dad’.

If you’re fortunate enough to receive a monetary gift that you can contribute towards your homeowing goal, you’re another step closer to owning your own home.

You must be able to prove that this money has been given with no strings attached (that is, you won’t have to pay it back).

You’ll also need to prove that you’re able to generate genuine savings to show that you’ll be able to afford your future loan repayments.

4. Buy a home in a regional area

Although property prices are rising in regional areas, on average they are still much more affordable than properties in capital cities.

For example, over the 12 months to March 2022, the median house price in Sydney increased by 16.4% to $1.25 million. Regional NSW median house prices jumped 29.1% to $800,300.

While the jump in regional house prices was almost double that of Sydney, regional house prices on average are still 35% lower.

With many workplaces now embracing remote working, moving away from the city and into a regional area might be the answer for you.

5. Buy a home with a deposit of less than 20% and pay LMI

Although many aspiring homeowners aim to save up a 20% deposit, that doesn’t mean you can’t buy a home with a deposit of less than 20%.

It may be a smart move to check if you’re eligible for any supporting government schemes. But if you aren’t, it’s still possible to get a home loan with a smaller deposit.

If your Loan to Value Ratio (LVR) is above 80%, you’ll likely need to pay LMI. LMI was created to protect the lender, not the borrower, in case the borrower is unable to make their repayments and defaults on their home loan.

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Make sure you factor in the costs of LMI if you’d like to buy a home with a lower deposit and work out if it’s financially viable for you to take the plunge.

If you have a question about home loans or you’re wondering if you’re ready to buy a home, we can help. Get in touch with one of our Home Loan Specialists for free, at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, first home buyer, new home, first property, first home owners grant, stamp duty

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