Paying off the mortgage is the new Australian dream, according to new research in the “Australia Today” report, with almost 80% of Australians placing outright home ownership as their most important priority.
While we dream of owning our home outright, it’s our mortgage that’s become our biggest burden. This research shows that if gifted with $50,000, all Australians across social grades would put more than half on their mortgage, with the majority agreeing that their mortgage has a “big impact on my lifestyle”.
SOLD… and mortgaged
So how much do homes cost, on average, and how big are our mortgages?
Alarmingly, the average annual full time salary, at approximately $80,000 is less than one eighth of the average cost of an Australian home today at $612,200.
In contrast to rising house prices, wages growth has remained relatively flat, so Australians are borrowing more. Figures from Australian Financial Group show that the average size of new mortgages nationally in December 2014 was $444,000. Averages across the states:
NSW – $544,000
Victoria – $439,000
WA – $428,000
NT – $375,000
Qld – $374,000
SA at $349,000
Most financial professionals recommend a mortgage repayment of no more than 28% of your monthly income or two/two and a half times your gross annual salary. With average new mortgages more than four times the average national wage, a lot of people are becoming disillusioned with the original ‘Australian Dream’ swapping it for a more manageable ideal – a smaller place with a smaller mortgage.
Living on a ‘quarter acre block’ (1000sqm) in a freestanding house with a vegetable garden or fruit trees down the back was the old Australian dream. For many it was a symbol of post World War 2 new beginnings. Australia was the lucky country because there was land aplenty, and there was freedom – and both symbolised opportunity.
In the 1980s, the dream adjusted to an eighth acre block (500sqm), land opportunities were already diminishing, but still enough for a good house and yard. The ‘house and land’ became the expectation of how we, as Australians, should grow up, of how we should live.
Today, we expect to have the same as our parents did and believe that our children have a right to enjoy the same, but if we want to pay off or reduce our mortgage and live in a major city in Australia, the only other lever to adjust is how we live.
In short, our dreams must shift and are beginning to already.
The rise of apartments
For many, purchasing an apartment is becoming a more attractive prospect for home ownership in an Australian city, with rising numbers of apartment buildings and values reflecting this shift in demand.
Recent research shows new flats and units building activity in Australia is experiencing one of its biggest booms in modern times. This category represents the most substantial increase in all construction classes with a 32% increase in new projects reported in Q1 2015 from Q1 2014.
This far outweighed more modest gains in industrial (8%) and civil engineering (4%). There’s also been a 58% increase in the actual dollar value of new apartments projects from $7.6 billion in Q1 2014 to $12 billion Q1 2015.
How to achieve your Australian Dream
Whilst the above paints a slightly daunting picture for owning your own home – it is doable, and often more within your reach than you realise!
The key to paying off your mortgage is not more money, but money management and education. It’s about making sure you’re aware of all the facts, wise to every trick in the book, and actively using smart mortgage repayment strategies to pay off your mortgage sooner on your current income.
Every year without a mortgage can make a big difference to your retirement savings, so if you’re able to pay off your mortgage sooner and cut it down from 30 years of repayments to 15 – you’re looking at hundreds of thousands of dollars in savings.
For Crown, everything we do is about helping the average Australian achieve their financial dreams. We have put all of our recommendations and money management strategies together into a free 6 week money management course.
All online and 100% free (of course) you can take the course in your own time and set yourself up for financial freedom. Give it a try and see how you go!
Sources: 1. http://insights.mlc.com.au/personal/blog/2016/02/the_new_australiand. 2. ABS May 2015. 3. ABS Sept 2015. 4. Australian Finance Group, Dec 2014. 5. Cordell Information