Millennials' path to homeownership

By Mark Rosanes | 02 Oct 2020

Millennials are more likely to enter Australia’s property market in the next few years compared to other age groups, a recent survey by online bank UBank reveals.

The report finds that 44% of Aussie millennials list buying a property as one of their top two goals in the next five to seven years, increasing 3% from February. Almost half of these aspiring homeowners say they are currently saving for a deposit.

By comparison, owning a house in the near future is a priority for only a third of Gen Y and Gen Z.

How are millennials saving for their dream homes?

Philippa Watson, UBank chief executive officer, says that the economic disruption brought about by the coronavirus pandemic has “spurred some positive financial behavioural changes,” especially among younger Australians.

“Despite 45% of the population admitting their finances have been negatively impacted in the last six months, we’re seeing millennials emerge as being quite resilient,” she says. “They’re taking the opportunity to implement budgeting and saving strategies to keep their financial goals, such as buying a home, on track, with many putting away half their salary each month.” 

According to the study, more than two-thirds of millennial respondents say they have saved enough to start buying a house, the highest among all age groups. The figures are 58% and 59% for Gen X and baby boomers, respectively, while 55% of Gen Z say they already have a budget.

“We know there’s a direct correlation between budgeting behaviours and reaching your financial goals, and it’s really impressive that so many younger Australians are being intentional around their money,” Watson says.

Millennials have also shown an active interest in managing their own finances. About a fifth say they have made one or more investments to boost their income while 12% have upskilled in areas outside of their current jobs to improve their chances of landing jobs with higher salaries. 

What challenges are millennials facing on their path to homeownership?

While many millennials have shown strong homeownership sentiment, most of them admit that the lack of financial knowledge is among the biggest barriers preventing them from getting on the property ladder.

More than 80% of millennial respondents feel “under-educated” when it comes to saving for or buying a home, which could potentially cost them thousands of dollars.

The study also finds a connection between personal budgeting behaviours and home loan knowledge, revealing those who do not actively budget were twice as likely to feel in the dark when it comes to home loans. 

“Owning a home is still a major goal for Aussies, especially young Australians, but our research shows some knowledge gaps that could cost borrowers thousands and add unnecessary years to the repayment process,” Watson says. “It’s not the right time for everyone, but for some, now might be a good opportunity to get on the property ladder or consider refinancing and take advantage of interest rates being at historical lows.”

Top home loan tips

Watson says that “just 20 minutes of homework into comparative rates and fees” could save aspiring homeowners “thousands over the life of a home loan” and help make the dream of owning a home within reach.

She shares seven useful tips when applying for a home loan.

1. Crunch the numbers early on.  

Use a borrowing calculator to check how much you can borrow. Factor in extra costs like legal fees and stamp duty. If you’ve found a property, know its value. 

2. Do your research. 

Determine the reason you are buying real estate – investment or live-in? This will help shape your research in terms of home loan lender, the area you want to buy, and type of property. 

3. Create a budget.

Now that you know where you want to buy and how much you can borrow, it’s time to save for the deposit. Put together a budget to calculate your monthly spending and how much you need to put away. UBank offers the Free2Spend budgeting tool, which helps track income against spending. UBank USpend customers can also set a savings goal and the tool will adjust your spending budget based on that goal

4. Don't be afraid to shop around.       

Find a lender with the best rate and features that you need, check the comparison rate and any fees so you know exactly what you’ll be paying. If you have a home loan, check if you’re getting the best rate. Don’t be afraid to pick up the phone and call your bank and then call around.

5. Be prepared for your application and know your spending.      

Have your ID in order and know your income, living expenses and debts. Have three months of bank statements ready as well.

6. Know the timeline – it can take longer than you think.

Contact your bank early, the process takes an average of five weeks for new loans.

7. Ask about lender support.

Review the bank’s website to see what processes they have for support during uncertain times so that you know what you’ll experience if you run into repayment challenges.

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