Warning Signs You Should Give Up On Home Ownership

16/11/2015 7:59 AM AEDT | Updated 15/07/2016 12:50 PM AEST
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While recent research by the Australian Housing and Urban Research Institute found about 1.7 million Australians dropped out of home ownership between 2001 and 2010, there are still those desperate to hold onto the Great Australian dream of owning a home.

The research also found more than one in three did not return to the status of ‘home owner’ by 2010. About two million Australian households now rent their home, a figure that has almost doubled in the past 30 years.

But those clinging onto the home ownership dream, might still be ignoring the warning signs and risk driving themselves into debt, simply because they feel shameful about ditching their mortgage.

Gavin Fineff from wealth management group Sentinel Wealth told The Huffington Post Australia most of the 41 per cent of people going from home ownership to renting are doing so due to affordability pressure rather than a preference to rent. Many others are risking going into debt to be a home owner.

“There is a little bit of keeping up with the Jones’ but mostly it is a common belief, 'I must own my home'. This belief is neither right nor wrong but it’s worth considering how this belief became ingrained. My view is that it is mostly due to experiences from the Great Depression, which was only 2-3 generations ago,” Fineff said.

“But, rather than redefining the great Australian dream, each person should actually define it for themselves and pursue whatever that dream is. It’s obvious to me that there is an increasing number of Australians that are actually thinking about what makes them happy and challenging the perceived priority to own a home. Younger Australians value living life as much as or more than owning a home."

A study published this week by bank ME said 49 per cent of respondents had delayed aspirations -- such as buying a new car, delaying or downgrading a holiday, or changing wedding or honeymoon plans -- to buy or pay off a new home.

The study found Generation Y were the most affected by this trend, with almost 70 per cent of Millennials putting off life goals to secure a place in the property market. Two in five had delayed or downsized their holiday plans, 27 per cent delayed or downgraded car purchases, a quarter are delaying starting a family or reassessing the number of children they want, while 23 per cent are cutting back on their wedding plans.

There are five questions Fineff said people need to ask themselves to see if they should give up on home ownership.

1. Relative to your income, are you mortgage repayments affordable?

2. Debt – are you relying on loans, credit and re-draw facilities to fund your mortgage?

3. What is the long term value of your investment?

4. Is your home a money pit? (You know your home is a money pit when it stops you from doing things that make you happy.

5. What is the market, economy and local area statistics telling you?

“It’s all about sustainable cash flow and being conscious about the risks. We often make decisions emotionally and then try and justify it with some sort of logic. I find this is particularly true when buying a home and for this reason there is rarely consideration of long-term factors such as increasing interest rates, changing income and changing expenditure,” Fineff said.

“Many seem to ignore the fact that interest rates will not be at record lows for 25 years or income will reduce for those few years when starting a family etc. If I could wish one thing for every home buyer it would be to simulate the projected cash flows of your expected life to assess if the debt will impact the life we really want.”

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