With rents continuing to rise and the pool of available rental properties rapidly shrinking, buying a home is no longer a luxury but a necessity for many people. But as any would-be buyers would attest, getting into the property ladder these days is becoming harder than ever.

Across the country, housing affordability levels are falling to new lows not seen in decades. This means first-time buyers need to raise a bigger deposit and take on a bigger home loan if they want to own a property of their own.

Recent data from the Australian Bureau of Statistics (ABS) show the average loan size in 2007 for first homebuyers in NSW was $260,000 - a significant increase from $169,000 in 2001. Average first homebuyer home loan commitments in Queensland were less than $100,000 in 1997, but had increased to $202,000 in 2004. The figure now stands at $232,000 - more than double the figure a decade earlier.

In that same 10-year period, while house prices have more than doubled, average earnings have increased by 54% for men and 57% for women. To make the situation even more difficult, average home loan interest rates have increased from 7% in 2001 to 7.3% in 2007. Not only are first homebuyers borrowing more money, but that money is also more expensive.

Getting on the ladder
The statistics should make the decision to buy pretty simple, but actually getting the right house, at the right price, with the right finance in place, is easier said than done.

Being realistic about what you can afford to buy is very important so that you don't overstretch yourself financially.

Lisa Montgomery, head of consumer advocacy, Resi, says first homebuyers (FHBs) should narrow down what they want to buy before they even start to look.

"It's really about keeping your options open, if you find what you want is out of reach, you should make a compromise in regard to the area and the type of property you're looking at. If you're looking in the Inner West of Sydney and find it out of reach, you need to look for anywhere else you might want to love, with a more affordable variety of property. It might be moving out on a rail link, or even buying an investment property outside the Sydney basin (if in NSW). You may also decide to buy a unit rather than a house," says Montgomery.

Realistic financing
On the bright side, securing finance is easier than ever for first homebuyers. The government is chipping in with stamp duty concessions for homes less than $500,000 and the first home Owner Grant (FHOG) of $7,000. Lenders are eager to secure FHB business by offering 100% loans at reduced rates with waivers on lenders mortgage insurance (LMI).

While all this is good news, you must always bear in mind that the monthly payments must be met for the term of the home loan. No matter what the projections say you could buy with your salary, you must be personally comfortable with the repayments, or risk losing your newly bought home.

Tim Brown, head of sales mortgages Australia, Macquarie Bank, says being able to afford the repayments is critical.

"Generally the first thing we always say is that they have to be able to afford the repayments. There's no point taking a loan if you're going to overstretch yourself. Most banks allow between 1.5% and 2% for interest rate increases; we look at their commitments and match that to repayments. We use the worse case scenario."

Montgomery adds that first homebuyers are being looked after for the financial component, but it's actually managing the monthly instalments that's important. "Lenders and brokers will give projections of different amounts you can afford, but it really comes down to what you feel comfortable borrowing."

She says that an option for some first homebuyers who feel stretched is to look at taking an interest-only loan for a few years - but she also offered a warning.
"Interest-only is good for a few years, but if that's your only option, maybe you're not quite ready to buy."

A helping hand to take the property step
Many young FHBs are requesting their inheritance early from parents in order to accumulate a deposit for a home. The rise of equity release mortgages has certainly driven that route into the market.
Montgomery says it's a viable route, but should be discussed carefully within the family first.

"Parents are coming to the party and giving kids their inheritance early by accessing the equity in their property. It's a personal decision between parents and kids. That's fine, but you've got to understand what that means. For some families, it hasn't worked out well - it's not always for everyone," says Montgomery.

Buying with friends is another good way of making that first purchase more accessible. It has the advantage of reducing many of the costs, as well as making the loan repayments more manageable. It also means you don't have to rent your spare room out to a stranger.

It's a great idea as long as you put in place enough safeguards to protect you, just like you would for any other business transaction, in case the friendship changes.

"You really must be aware of all the contingencies when buying with someone else. It gets you into the market, but you won't always have the same desires, and goals can change. Make sure you have legal documentation in place so nothing can happen that you haven't got a way forward for," says Montgomery.

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