Can Gen Z Buy Homes: 5 Steps to Break into the Property Market

Entering the property market can be daunting for people of any age, but if you’re a member of Generation Z, it can be especially confronting. Gen Z typically refers to those born between 1997 and 2012, meaning the oldest Gen Z’ers are just now heading into their late 20s, and staring down the prospect of owning a home.

Almost half of Gen Z are saving up for house deposits, yet some would argue that they’re facing a harder uphill battle than the Millennials who came before them. Millennials had access to historically low rates between November 2020 through to April 2022 for instance, meaning the market was flooded and many people were able to lock in low rates. Those aged between 28 and 43 who did this are unlikely to move any time soon, restricting housing supply and keeping prices high.

But there are many barriers to Gen Z homeownership, beyond expensive homes and high interest rates. Finance jargon can be confusing for one – do you know the difference between LVR and LMI? If not, this is where a mortgage broker can help. Mortgage brokers educate their clients about all things loans and guide them through the process one step at a time.

However, it’s not all doom and gloom for Gen Z (and homebuyers in general). First homebuyer government initiatives can help make homeownership more achievable, and there are strategies young people can implement to help them own a home sooner. If you’re a Gen Z’er who doesn’t think they’ll ever own a home, it’s time to prove yourself wrong.

Step 1: Get your savings plan in place.

The key to homeownership is having the money to afford a deposit and mortgage repayments. A good rule of thumb to help with saving this money is the 50/30/20 Rule:

– 50% of your after-tax income is for necessities- rent, groceries, insurance etc. You can read more on saving here.

– 30% is for your wants – day-to-day items such as indulgent purchases, entertainment, clothing, etc.

– 20% is for your financial goals, whether they be reducing debt, saving for a home, or building up an emergency fund

A major roadblock many aspiring homebuyers struggle with is the 20% house deposit required to avoid having to pay Lenders Mortgage Insurance (LMI). LMI protects the lender if you fail to make your mortgage repayments. It is an insurance premium paid by you, the borrower, if you can’t provide at least a 20% deposit. However, the Home Guarantee Scheme¹ allows eligible first homebuyers to purchase a home with a deposit as little as 5%, without having to pay LMI, making homeownership much more accessible.

Step 2: Consolidate and pay off your existing debts.

Another financial hurdle Gen Z must contend with is student debt. Gen Z and Millennials make up 66% of those with HECS HELP loans, and while these loans are technically interest-free, they are still vulnerable to indexation, meaning that recent HECS HELP loans have ballooned due to 7.1% indexation. Debts such as student loans can negatively affect your borrowing capacity. If you’re looking to purchase your first home, paying off your student debt and any other debts you may have, such as car loans or credit card debts, should be near the top of your to-do list. This is likely to improve your credit score, making you a more attractive borrower to lenders.

Step 3: Get purchase ready.

So, you’ve saved up enough for a deposit and you’re debt free, great! But a mortgage is a long-term commitment, and you need to make sure you’re in a strong financial position so that you can meet your repayments and cover any other long-term costs such as home maintenance and utility bills.

Plus, it’s worth remembering that whilst the interest rate you secure initially may be manageable, it may change with time. This is of course taken into account by the lender before they approve you for a loan and is a big part of their commitment to responsible lending, however it’s also helpful to have a mortgage broker on hand throughout the life of your loan in case your repayments increase slowly but surely, or your circumstances change. Your broker can assess your repricing and refinancing options and may be able to secure you a lower rate or a different loan that better meets your needs.

If you’re planning on bidding at auction, it is wise to secure pre-approval beforehand. Pre-approval provides you (and vendors) with an indication of how much you’re likely going to be able to borrow, it demonstrates to vendors that you’re serious about your intentions to purchase, and it can give you negotiating power and an advantage over other potential buyers who have not yet secured financing.

Step 4: Find a property that’s right for you, right now.

Chances are your first home won’t be your dream home, so it’s important that you keep an open mind and are willing to compromise on non-essentials (the home cinema may have to wait). If you’re purchasing just for yourself, a one or two-bedroom place is a great start, while Gen Z’ers who are parents may need to fork out a bit more for a place that can support a small family. For some, location takes precedence over the house itself. If this rings true for you, consider things like the property’s proximity to public transport, schools, shops, and even bars!

If, after a year or so of living in your home, you feel that the location no longer suits your lifestyle, you could consider ‘rentvesting’ – renting in an area that better suits your needs, while a tenant lives in the property you own, providing you with passive income. The important thing is – you’re on the property ladder!

Step 5: Seek support.

At the end of the day, you’re still new to the homebuying process, and nobody expects you to know the ins and outs of the mortgage world. That’s where having a mortgage broker on your side comes into play. Mortgage brokers can present you with a wide range of loan options, walk you through the loan application process and do the heavy lifting for you, equip you with the knowledge and tools you need to make informed decisions, and help you to secure a finance solution that’s right for your homeownership goals.

Get in touch with your local MoneyQuest broker today and make the impossible possible!

¹First Home Guarantee

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