Home alone: Can single income buyers afford a home?

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First home buyers have eased their grips on the mortgage market after the First Home Owners Boost slumped at the end of September. However, with recovering economic figures and the interest rates set to rise at the next Reserve Bank meeting on November 3, first home buyers are asking themselves the question – have I missed my big chance to own a home?

Many young professionals on a single income have been pondering their chances of survival in the home buying game. But how affordable is it to step into the property market right now?

The good news for single first home buyers is the flexibility. Without dual contracts, you can choose when to make extra repayments, when to refinance, and when to sell. If you’re not on the same wavelength as your co-buyer, issues such as missing a payment or wanting to sell can become big dramas.

The bad news is that you will lose the power of combined finances, so saving for a deposit and making repayments can take twice as long. However, you can simply buy a smaller home, or rent out your spare rooms to help with the repayments.

Single bedroom homes go for as low as around $100,000 in the outer suburbs of Sydney, while most will average between $250-350,000. That means a single first home buyer would need at least 10 percent for a deposit, which is $30,000 for a $300,000 loan.

For the average annual income earner of $48,000, saving $30,000 will take two years and five months if you put away one quarter or $1,000 of your monthly salary into a savings account with a 5 percent p.a. rate.

However, according to the latest QBE Lenders’ Mortgage Insurance (QBE LMI) Housing Outlook 2010-2012, property prices are predicted to increase by up to 23 percent in the next two years.

This means that a $330,000 house could shoot up to $406,000 by 2012, which will require a $10,600 increase towards the original $30,000 deposit, if first home buyers plan to purchase a home in more than two years time. That will take the average income earner an extra nine months of saving.

Variable interest rates are also expected to increase in the next two years from the current average 5.7 percent to 7.7 percent p.a., which means repayments for a $300,000 home loan will increase by $378 per month or $4,536 per year.

There is a dramatic difference of what two years can make so make sure you are prepared for the tougher road ahead by researching the market and comparing the best deals online.


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