My wife and I are some of the many victims of first homebuyer advertising.
You know the ads — “If you have $3,000, you can buy a home!” And as a young couple we did not fully understand the impact of getting a loan to get a loan. We bought our home in 2014, at the top of the Perth market. Five years on and our house is valued at $70,000 less than what we owe. I have a well-paying long-term job ($200,000+) and my wife stays home and looks after our four wonderful children, but we are depressed.
What options are available to resolve this?
For those of you playing along at home, you may wonder how Jarrod could buy a home for $3,000.
The answer lays in his statement, “we did not fully understand the impact of getting a loan to get a loan”.
The $3,000 claim is just advertising spin to get potential postcode povvos through the door.
Then they’re hit with the reality stick:
You still need to come up with the deposit, so the developer’s finance arm will often arrange a high-interest unsecured personal loan to cover the deposit, on top of the mortgage (which is also much more expensive than what most people pay, because you have no history of savings plus an expensive personal loan to repay!).
But it gets worse.
These cheap starter homes are built in cheap starter suburbs, and they’re generally the first to drop in value when there’s a downturn. And that effectively locks buyers in: they can’t get the capital growth to refinance, and so they’re forced to continue struggling to pay off their expensive loan. It’s a vicious circle. Three grand to be in the doghouse!
So, given it’s a stinky sandwich, what would I do in your situation?
Well, if you’re content to stay in the home long term, it doesn’t really matter what the value is in the short term.
What matters is clearing your debts. And in that regard you’re more fortunate than many postcode povvos — you’re earning good dough, so focus on knocking off the personal loan you took out for the deposit. Pronto.