Borrowers may have to compromise amid housing challenges

The recent release of NAB’s Market Megatrends 2024 report analysed some of the most pressing property market influencers.

Supply is a major challenge, with elevated construction costs, poor affordability and strong population rates culminating in a difficult environment to purchase a home.

Despite a reported rise in building approvals, climbing 4.4 per cent in September, they’re still low. According to NAB, while 45,000 dwellings were completed in Q2 2024, the population grew by 164,000 in Q1.

Home ownership is taking a hit due to these issues. As of 2021, home ownership sat at 67 per cent, down from 70 per cent in 2006.

Meanwhile, cost of living is up and over the last five years, home values are up 46.5 per cent, rents have risen 39.9 per cent. Wage growth is less than half that amount at 15.3 per cent.

It’s time to be realistic

With the variety of challenges having an impact on home ownership, borrowers may need to compromise. Brokers can help facilitate some other options that can help people make a more reasonable purchase.

An obvious one is consider purchasing a cheaper property. The difference in price between a house and a unit in the capitals is extreme. In Sydney, the difference can be as much as $612,900, NAB said.

Meanwhile, cities see more than a $100,000 difference between the 25th percentile and median value, with areas like Sydney recording a difference of almost $400,000 for houses and $200,000 for units.

While people may not be able to purchase in the exact spot they’d like, there are other options. Considering regional living is one of them. As discussed recently by Broker Daily, an increasing number of Aussies are moving out of metropolitan areas, while those already in regional areas are staying put.

Further, “rentvesting” can be an attractive option as it allows borrowers to enter the property market and rent where they’d like to live. NAB noted that in the 12 months to August 2024, 8,524 first home buyers took out finance to purchase as an investor rather than buying a home to live in, up 24 per cent from the same period a year prior.

While borrowers may sacrifice government grants and incentives due to not being an owner-occupier, it allows for increased flexibility and cheaper alternatives.

What a broker thinks

Nathan Smith, director at Birdie Wealth, gave his opinions on the matter. Communicating with the borrower and working together to find a solution to the challenges is key.

“Even with government grants and incentives, the gap between what people can afford and what’s available continues to widen. Property prices keep climbing. Borrowing capacities are shrinking. Many buyers are simply priced out of the market,” Smith said.

“We’re focusing more on long-term financial planning, helping customers to build sustainable strategies that go beyond just securing a home loan.”

Smith urges borrowers to “focus on the solution, not the rate”.

“We’ve moved away from simply chasing the lowest interest rates to focusing on who offers the best overall solution for the client. This includes looking at borrowing capacity, how banks assess serviceability, and which lenders have more flexible policies that suit individual circumstances.

“We had a first home buyer recently, and the difference between borrowing capacity across banks was $40,000 – that amount can make or break a deal in Sydney.”

Budgeting is also crucial to any home ownership journey. Smith noted that brokers can assist clients further by helping them to budget effectively.

“For the last two years, a lot of my work has been around supporting clients to budget well – while also making sure they’re on competitive rates. As rates have moved up, people are certainly much more conscious of what they’re spending and looking for ways to either earn more or reduce expenses where they can.”

As touched on earlier, helping customers to understand that being flexible on location can be a massive help, is important.

“It’s not always about finding the dream home right away. Sometimes, it’s about helping buyers make compromises – whether it’s considering smaller properties, further locations, or even different loan structures,” Smith said.

“The market is evolving rapidly, and for many buyers, the process can feel overwhelming. As brokers, we’re here to coach them through, helping them understand their financial position and find solutions that work for their specific situation. We see many first home buyers who don’t fit the typical profile. They might be in their 30s, have families, or need a larger home, which often puts them outside the price thresholds for most grants.”

He concluded: “There’s no one-size-fits-all solution, and that’s where brokers can add real value. We’re able to provide options and guidance, especially in a market where every advantage counts.”

Related: Regional areas the nation’s ‘destination of choice’

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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