Statistics published recently indicate it is becoming harder for first home buyers to enter the market.  Banks require a 20% deposit on a property or you will incur Lenders Mortgage Insurance (LMI) which is not cheap. Houses within 20kms from the city are starting around the $400,000 to $500,000 mark. That means the initial deposit will need to be $80,000 to $100,000. So how can someone in their 20s or even early 30s expect to ever be able to save for a deposit?

I had a daughter of a client in her mid-20s come into my office recently, with $20,000 in the bank, on a salary of $65,000 and saving $1,000 per month. Her intention was to save for a deposit on a house…approximately $80,000. Therefore, based on her current savings pattern this would take another 5 years to achieve.  But in 5 years’ time is that same house going to still be worth $400,000? It may have increase to $500,000 or more meaning the deposit is again another $20,000 away.

The strategy we suggested was to conservatively borrow to enter the sharemarket. The aim of this strategy was to have more money working for her and potentially magnify capital gains potential. It was to put in her $20,000 and borrow $20,000 to buy good quality shares. This is a 50% Loan to Value Ratio (LVR). Obviously this strategy comes with risks as the share market could fall. However, in this low interest rate environment the dividends and franking credits from shares could cover the ongoing interest payments.

This type of strategy clients need to have a minimum time frame of 3-5 years. This doesn’t mean if the market goes up 20% in 6 months that you can’t payout the loan and walk away with the capital gains. It doesn’t lock you in.

In August 2013, the Australian share market is at 5,025 points, a far cry from the previous highs of 6,873 points on the 1st of November 2007. And history has shown that the market always recovers and exceeds the previous high. So if you are looking to save for your first home, think outside the cash in bank account approach, and you might get there a lot quicker.


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Thomas Jacks BCom (Acc), SMSF SpecialistTM, Adv. Dip F.S. (FP)
“I want to be able to assist clients with their investment and retirement planning by providing real strategy advice. It’s my aim to not only help my clients but to educate them by addressing the entire picture” Google Plus

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