Young Australians like Sharona Ghayem are taking non-traditional paths to get onto the property buying ladder. (Source: Supplied)
A Sydneysiders woman has told how she got into the increasingly expensive property market, with rising prices forcing many Australians to consider alternative ways to realise their home ownership dreams.
Like many young Australians, Sharona Ghayem and her partner were finding it increasingly difficult to save up the 20 per cent down payment for a property. Just when the 25-year-old thought she had saved enough, she said, soaring prices made it impossible for her to buy.
“I currently live in the Hills area of Western Sydney and although I would love to live there, it just wasn’t feasible for my partner and I financially,” Ghayem told Yahoo Finance.
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Ghayem, who works as an operations manager, said he has started looking into different strategies to enter the market, such as buying an investment property in a cheaper area and making a smaller down payment.
While living with his parents in Sydney, Ms Ghayem and her partner bought their first property in Blacktown: a five-bedroom, two-bathroom, granny flat for $1.15 million with a 12 per cent down payment.
“It feels like if you don’t get in the market today, you’re always going to be left behind,” she said.
“I see my future as better in the long run and although this investment is in real estate, it is primarily an investment in my future.
“Now that I have the equity from my Blacktown investment property, I feel like I can better plan for the purchase of my dream home.”
Ghaem hopes to use the equity in his investment property to eventually purchase his dream home. (Source: Provided)
Ghayem is one of many young Australians embracing “rentvest”, a home-buying strategy that involves buying an investment property in an area they can afford, while continuing to live in their preferred area.
Mr Ghayem said he chose Blacktown because it was a “major hub” in Western Sydney and close to schools, and that he had already made a profit since buying the property in March last year.
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“The rental yield is 4.84 per cent and the rent covers 72 per cent of the monthly mortgage repayment before expenses,” she said.
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LMI is an “alternative route”
In addition to “rentvesting”, new research has revealed that more Australians are now buying with smaller down payments and taking out lender mortgage insurance (LMI) to help them buy property sooner.
Traditionally, buyers have had to save up a 20 percent down payment, which can amount to thousands of dollars, to avoid LMI, a one-time, non-refundable fee designed to protect banks against the risk of defaulting on your loan.
New research from LMI provider Helia has found that rising living costs and property prices have meant three-quarters of potential home buyers have saved less than 20% for a down payment.
About 55% of buyers surveyed by the firm said they paid LMI when purchasing property this year, up from 36% in 2023.
“LMI is an alternative for buyers who want to gain homeownership without making a 20% down payment,” Helia chief commercial officer Greg McAweeney said.
“LMI allows buyers to enter the real estate market, consider purchasing a larger home and ultimately start building equity faster.”
How much is LMI?
LMI is calculated based on the amount of your deposits and loans.
Helia calculated that for an average home priced at $850,000 with a 15 percent down payment, the LMI fee would be $9,156.
With a 10 percent down payment, that increases to $18,819, and with a 5 percent down payment, it’s $33,935.
The strategy “makes sense” but has flaws
Ghayem said paying LMI enabled him to enter the property market and start building wealth faster.
“We feel like we made the right decision. Given the savings we had and the equity growth we’ve had in just a year, it was a decision that made sense,” she told Yahoo Finance.
According to CoreLogic data, the average price of a home in Australia has increased from $767,000 to $848,000 between 2023 and 2024 – a price change of $81,000.
Meanwhile, the average unit value increased from $601,000 to $650,000 last year, an increase of $49,000.
While LMI allows you to buy faster, accumulate assets, and beat rising prices, it also has some drawbacks to keep in mind.
Momentum Wealth points out that a smaller down payment means you’ll be taking on more debt. Plus, many mortgage lenders offer lower interest rates to borrowers with larger down payments, so you might end up paying a higher interest rate.
As your debt increases and interest rates increase, your mortgage payments may also increase.
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