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How to maximise renting before buying

By George Hadgelias

Many of us spend time renting while we save up to buy our own dream home.

Should you buy or rent in your suburb?
So how can you get into your own place as quickly as possible while still paying the rent? We asked a financial adviser for his tips on what renters can do to increase their chances of buying.

If there are large credit card debts it could be detrimental to your borrowing ability.

The challenge of saving a deposit

According to Martin Speiser from Masu Group, the biggest obstacle for renters who want to buy is saving a deposit, particularly in big cities where rents are high.

“Renters are spending a lot of their disposable income on rent,” Speiser says. “This makes saving very hard.”

“It is also tough for young people as lifestyle is a priority – so it’s hard to tell a twenty-something not to go out and party or travel,” he says.

Despite the challenge, Speiser says saving a deposit is critical.

“Banks no longer lend 100% of the purchase price, so without a deposit you cannot buy,” he says. “It is also more difficult for parents or others to go as guarantors of loans these days”.

But while saving a deposit should be the main focus of renters who want to buy their own property, there are some other things to keep in mind.

Look at the bigger picture

Speiser says changes to the first home owner’s grant and the limiting of stamp duty concessions in some states doesn’t help.

This has often happened at the very same time as property prices increased.

This means it pays to spend time looking at the bigger picture and how this could affect your ability to buy property, whether positively or negatively.

“As prices increase, affordability reduces, and the deposit required increases,” Speiser says.

Speiser also says that, far from being a benefit to new home buyers, low interest rates actually make saving harder.

“You would think low interest rates would help buyers,” Speiser says. “However, if you are trying to save in a bank and interest yields are 2%, that’s not a lot of growth you are getting.”

Bank policies on lending have also been shifting – not only the Loan to Valuation Ratio (LVR or how much they will lend on the value of the property) but also their willingness to lend in certain areas where they feel there is oversupply, like Docklands in Melbourne.

“If they do lend, it may be at lower LVRs,” Speiser says. “And the lower the LVR the the higher the deposit needed.”

Prepare yourself financially

Speiser’s advice to those looking to purchase property is simple.

“Save, save, save, and try not to rack up personal loans and credit card debt,” he says. “If there are large credit card debts it could be detrimental to your borrowing ability.”

And be pragmatic about how you can help yourself achieve your goal.

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