The answer is (usually) dictated by your financial circumstances, and if there is an inability to save a deposit, it will default to renting.
The downside is by renting you are gaining little leverage to move into the property market. “Rent money is dead money” as the saying goes, and this is because the money you are paying a landlord is going towards paying off their mortgage instead of your own.
The question then becomes, how is it possible for someone stuck in the rent cycle to become a home buyer?
There are a few options available to you. These include:
A family pledge allows family members (or close friends) to support you without providing any cash. You instead use the equity in their property as your guarantee. This guarantee can make up any portion of the loan and will be released once repayments have met the standard requirements.
This option allows borrowers to gain up to 110% of the loan value and includes various benefits for buyers, such as access finance, avoiding LMI and increasing borrowing power. It is important also to realise the drawbacks of this option, the main being putting your family home at risk.
Lenders may accept rental payment history to prospect your potential to make mortgage repayments. This feature is particularly useful when rental repayments are greater than your potential mortgage repayments will be.
You still need to save the deposit of at least 5%. Deposit options include gifted deposits, bonus/dividend/commissions income, inheritance, the sale of non-real estate assets, tax refunds, first home owners grant and personal loans. (This varies depending on the requirements of the lender).
Shared equity loans are when you purchase a property alongside a friend or family member. This option allows individuals, especially those with lower incomes, to get into the housing market and distribute all responsibilities across two parties.
It is strongly advised you establish a written agreement with all intentions and goals for each party involved. The purpose of the agreement is to avoid/resolve any issues regarding payments, disagreements on when to sell and provide guidance if there is a falling out between parties.
For more information regarding all above finance options and more, contact Professionals Finance for an obligation free consultation.