Is it really harder to buy a property and get a mortgage today?
Here is what you should know:
The Australian dream holds strong. Today, as always, that dream includes owning your home and paying it off in time so that you can lay back and retire calmly.
Zammit represents the interest of a majority of Australians when he explains that in 1976, when he bought his home: “Our aim was to own our home when we retired so that we would be able to survive on the pension.”
Many settled for second-hand furniture to achieve this dream. Something perhaps not as common today.
Potter believes “A lot of young people want to start with all the bells & whistles & are not willing to sacrifice a little of their expectations & hence committing themselves to a lifetime of debt.” In her case, she had to upgrade her home over the years, “buying a second hand house & making our own improvements & eventually owning everything.”
“This is how we had to do it in those days as there was never a lot of money, no inheritances, no wealthy benefactors, no big lottery wins, just working for it & keeping our expectations realistic.”
Is it harder to buy a property today?
There is a clear debate. It seeks to answer whether it is easier or harder to buy a home today than it was 40-50 years ago.
It is true, prices in Australia have soared from what they were in the 1970’s, more than 16-fold in some cases. For many, this clearly means affordability has gone down. Thus, it is harder today to buy a home than it was then.
But considering other factors, the picture isn’t so clear-cut.
How did homes look like in the 70’s?
In the 70’s, the average home in Australia was generally three bedrooms, one bathroom, fair sized bedrooms and an open-plan kitchen and separate lounge area. The average size of a home was about 150 square meters, while today it’s around 240. Australian’s want to buy bigger houses, who can blame them.
Fortunately, to buy a home today most people can go online and try and find the best rate for their mortgage. But before, it wasn’t so simple.
The process of getting a mortgage in the 70’s:
Here is what we found. To compare this process to the one today, you can look at our article: Understanding the basics of Home Loans.
To purchase a home in the 70’s:
- There was much less choice when it came to getting a mortgage. Mostly, one would have one or two local branches which would serve customers.
- It was an interview-like process. You would get your best outfit out of the closet and you had to thoroughly prepare for every question the bank manager would throw at you. It was ultimately in his hands.
- It was more personalised. You needed to present a certain image that would convince the bank manager to give you a loan. If this wasn’t communicated well, you were one step farther from a new home.
These questions focused mostly on your employment record. Luckily, back then, it was common to hold long careers (as long as 20 years or more). Today, this is almost an anomaly.
As for the mortgage:
- The bank manager would allow a loan of around 2.5 times the husband income plus the wife’s income.
- Over a 30% deposit was necessary.
- A minimum amount in an approved savings account for at least 12 months was required.
- One couldn’t commit to paying more than 25% of disposable income to mortgage repayments.
- Interest rates were a lot higher (highest in 1975: 10.38%), creating an incentive to pay off your home earlier.
Once all of these boxes are ticked, you could expect a long and thorough process before your mortgage is accepted. A few weeks if you’re lucky, nothing less. This is because everything was done manually and on paper. As opposed to today where your mortgage can be sorted in a matter of days.
Was it really easier to get a mortgage?
Taking all of this into consideration, it wasn’t as easy as we may think to purchase a home back then compared to today. Indeed, houses seem to be less affordable when accounting for the difference between average income levels in Australia versus average home prices. Yet, we like to disregard how much easier the process is.
Today you have an endless amount of choices. The internet provides a platform to find the best deal for your personal requirements. The process is a lot quicker.
However, on the other side of the coin one could say that it is harder to gain the necessary qualifications, as job security is weaker and people move around cities and countries more with an increasing global world.
In my opinion one thing is for sure. Neither generation has had it easy.
Yet we need to understand both had their advantages. Today, I would say our advantage is choice and access. As a homebuyer, one should take advantage of this.
Finding the right mortgage means that you will be part of a market leading home loan product and rate that will save your hard earned money and help you build wealth. At LoanDolphin what we can do is facilitate the process of finding the right mortgage solution for you.