First Home Hell

Barefoot,

I have been saving as much as I can. By mid-year we should have a deposit and could start looking at buying rather than renting. I know your normal advice is to buy a house when you can afford it. But does that still apply when these inflated house prices seem like a bit of a false economy?

Doug

Hi Doug,

I feel for you.

Property prices are getting juiced because of low interest rates.

And the Reserve Bank has said they’ll keep rates at (basically) zero for at least the next three years.

Here’s how this is playing out in the real world.

Greater Bank has a one-year fixed home loan rate of just 1.69%!

The lowest on record.

At the same time, the average rate on a bank savings account, according to Mozo is just 0.18%!

Also the lowest on record.

In other words, right now property prices are at record highs and are rising faster than most people can save. Which is great for people like me who own property, shares or other assets. Yet it’s absolutely horrific for anyone starting from scratch, trying to save and scrounge up a first home deposit.

So, what to do?

Well, there’s all kinds of advice people will try to give you:

Ranging from the practical (save a 20% deposit, take a long view) ...

To the patronising (buy out in Woop Woop and sit on milk crates for a few years) ...

To the pathetic (“I’m 23 and own 75 rental properties, it ain’t that hard if you have a system”).

Yet there are no easy answers.

So instead I want to leave you with this thought:

Interest rates are only going one way from here … up.

I don’t know when. But if you’re taking out a 25-year mortgage, well, chances are you’ll see hikes.

And that’s why I’ve consistently advised people to stick with what works …

Save up a 20% deposit, find a home you’re happy to live in for 10 years, buy it.

Forget about what the market is doing.

Scott.