During a period marked by soaring property values, many young Australians might view real estate investment as a seemingly fail-safe avenue to wealth accumulation.
Yet, Aaron and Angelina Scott (pictured above, right to left), co-founders of bRight Agent, stressed the importance of caution, particularly for those considering a purchase with a minimal 5% deposit.
“Think twice,” the Scotts advised, pointing out the dual risks of declining property values and the challenge of mortgage sustainability in an unpredictable economy.
Entering the housing market with a low deposit increases the risk substantially. A smaller initial investment means a higher loan-to-value ratio, which could quickly lead to negative equity if property values drop.
“A 20% deposit is like swimming with your neck and shoulders out of the water,” the Scotts said. “With only 5%, a small market ripple can easily submerge you financially.”
Current trends in the Australian housing market show a slight decline in property values, with notable dips in major cities like Melbourne and Sydney.
December data from CoreLogic indicated a -0.1% drop nationally, with sharper declines in these larger markets.
For those with minimal equity, these conditions heighten the risk of negative equity, particularly if a quick sale becomes necessary, the bRight Agent co-founders said.
The Scotts suggested a more conservative approach to home buying, recommending saving for a larger deposit, ideally 20% or more.
This strategy not only reduces the loan-to-value ratio but also provides a buffer against market fluctuations, leading to more favourable loan conditions and enhanced financial security.
“Saving up a really decent deposit is not what most people want to hear, but it really is the best thing to do,” they said.
bRight Agent offers a free app that allows sellers to compare commission rates from real estate agents across Australia. Available for iOS and Android, the bRight App helps users navigate the property market more effectively, supporting smarter financial decisions.
