A Shout out to all the Renters

I was born dangerously close to the VFL Grand Final.

So when my mum brought me home for the first time, she was greeted by my dad and his mates (including the doctor who delivered me) drinking frothies and watching the game in the loungeroom.

A generation later, things have changed for under-the-thumb house husbands like me: I spent a few days in hospital with my wife in a double bed, being about as useful as my old man trying to change a nappy six tinnies in.

While I was there, I met a fellow father in the hospital breakout room who must have recognised me by my feet.

“What’s the property market going to do?”, he asked.

“I have no idea”, I told him (my standard response).

“We’re … renting”, he sighed, and looked down at his feet.

Let me have a crack at the thoughts that were going through his head:

“I’m taking my newborn home to a … rented home!

“I’m obviously a bad parent …

“And if my baby could talk he’d say, ‘Daddy why can’t we be like every other family and own our own home? Why don’t you have your finances sorted? When I grow up I’m getting a neck tattoo of Miley Cyrus.”

This poor bastard was being hit by ‘FOMO’ (Fear Of Missing Out), with both barrels. Most renters in their twenties and thirties feel it when they drive past an auction, watch a renovation show or talk to their home-owning mates — but it reaches a peak when you hold your little baby in your arms.

Now I only spoke to this guy for all of 30 seconds (in retrospect my comment was perhaps a little dismissive). But, thinking back to our conversation, this is what I should have said:

“Don’t listen to your mother-in-law …

“Don’t listen to your mortgaged-up mates …

“And certainly don’t listen to most of what makes it into the media.”

Case in point: there was an article in the Fairfax newspapers last week entitled “First Home Buyers Look To Credit Cards”

It began:

“First home buyers are increasingly opting for credit card debt and personal loans to cover their home deposits, according to a new survey. Only 51 per cent of first home buyers are sourcing all of the money for their deposit from savings, down from 66 per cent in 2014, Lenders Mortgage Insurance provider Genworth’s Streets Ahead report found.”
Shocking, right?

Some context: this survey was paid for by Genworth, Australia’s largest Lenders Mortgage Insurance (LMI) provider.

Genworth has a vested interest in young people not following my Barefoot advice of saving up a 20 per cent deposit.

Why?

Because if you have less than a 20 per cent deposit, virtually every lender will make you take out LMI.

Genworth didn’t become a $2 billion behemoth by selling cheap insurance.

Get this:

If you buy a $500,000 home with a 5 per cent deposit, you’ll be forced to pay LMI of $15,722.

It gets worse: because you’re borrowing for the policy, it’ll likely end up costing you $30,000.

It gets worser: if you switch banks to get a better home loan rate, Genworth will collect another $15,722. Remember, this insurance doesn’t protect you — it protects the lender.

Quick recap: LMI is a complete and utter rip off, and Genworth is the devil.

Got it?

Right. Back to the article.

Article says: “if an applicant was on a high enough income to pay for the loan but didn’t have the full savings needed then it could be acceptable to a bank in terms of serviceability” says a mortgage broker from Dream Financial (yes, that’s really the name of the business).

Reader says: “Hmm. Everyone’s doing it, why don’t I give it a go?”

Barefoot says: Butchers will tell you to enjoy your sausages (just don’t ask what’s in them). Likewise, bankers will tell you to enjoy your mortgage (just don’t ask where it came from).

Article says: “using other sources like a personal loan or credit card to get you over the line as a proportion of your deposit could be beneficial if it means getting into the property market now, as long as you’re not overstretching yourself”, says a spokeswoman for comparison website Finder.

Reader says: “Hmm. Everyone’s doing it, why don’t I give it a go?”

Barefoot says: This is the very definition of overstretching yourself. Stop it.

Article says: “If your property goes up 10 per cent in the first year, then it may pay for the debt”, says the Dream Financial dude, again.

Reader says: “Hmm. Everyone’s doing it, why don’t I give it a go?”

Barefoot Says: This is utter crap. If you’re forced to take out LMI, it’s very, very unlikely the banks will refinance you in the first year.

Article says: “House prices are going up year on year, when you’re seeing house prices going up and the Australian dream of owning your home is still strong, people will find ways to bridge that gap. In this climate you can expect this trend to continue”, says Genworth’s spinner.

Reader says: “Everyone is doing it. Why don’t I give it a go?”

What I say: This Genworth report is a bunch of bulldust aimed at fanning the flames of FOMO to legitimise young people making desperate financial decisions to buy a house they can’t afford … which is how Genworth made a net profit after tax of $324.1 million last year.

I’m not paid by a bank, or by any financial flogger. I’m fiercely independent and get to say whatever the hell I want. So here’s my two bob’s worth for all the renters out there:

You’re not a loser for renting. It’s not ‘dead money’. In fact some of the most financially insecure people I deal with are those who’ve bought homes (and LMI insurance) they couldn’t afford.

Financial stress rips families apart.

By all means buy a family home — but only after you’ve done the sums, and you know you can comfortably afford it. Ultimately it’s you who has to front up to decades of repayments, so for godsake own your decision. Don’t be rushed into it by anyone.

Tread Your Own Path!