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| House Purchase in Oz; How to do it... | |
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| Topic Started: Feb 9 2008, 02:13:03 PM (1,011 Views) | |
| Nanook | Feb 9 2008, 02:13:03 PM Post #1 |
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True Blue Mate
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All, We were wondering; with a move to Oz upcoming we had a look at the housing in the area we're relocating to and found that decent housing is costing around 600 big ones. How in heck does one afford that kind of mortgage? We're used to a $170k note over thirty years at 6% fixed. Are mortgages >30 years? I know that most, if not all, mortgages are variable interest, so I know that low rates are out of the question. Even with $100k down we can't afford a home. Does this seem odd to anyone else, or is it just us? Nanook |
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| dave2006 | Feb 9 2008, 03:59:31 PM Post #2 |
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True Blue Mate
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There's a current thread here about mortgages and housing. There are up to 40 year mortgages here (variable rate). The longest fixed rate mortgages appear to be 10 years, but there has been some discussion as to whether these are actually better than longer variable rate loans. |
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| shylady | Feb 9 2008, 04:07:18 PM Post #3 |
oldYank
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I can't remember what bank it was, but when the prices really skyrocketed here in Perth the last couple years, someone was advertising a 60-year mortgage! :eek: :eek: Lisa |
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"I could’ve turned a different corner, I could’ve gone another place... " ku,'09 | |
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| incognito | Feb 9 2008, 04:08:13 PM Post #4 |
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Chatterbox
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Welcome to Australia! It's ridiculous. On top of all that add in huge govt fees that add thousands and thousands to the cost (well beyond what we paid in closing costs in California). We had a certain down payment in mind for a certain price range of houses, then we realised how high closing fees are with stamp duty, etc. and we had to shelve that idea for several more years. Can you remind us where you are moving? There is a lot of discussion about housing prices, etc if you look around. The quality of life thread has mentions, as well as some other threads. It's a sore subject for many. And then there are high rents. Oyyyy! |
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| dave2006 | Feb 9 2008, 04:20:18 PM Post #5 |
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True Blue Mate
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LOL! Australia is a loan shar... er, banker's dream. |
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| alect | Feb 10 2008, 03:28:33 AM Post #6 |
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True Blue Mate
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actually they would disagree as banking is much more regulated in Australia than it is in the US |
| Los Angeles to Melbourne with my Yank wife (and dual daughter plus twins in the oven) | |
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| travanx | Feb 10 2008, 11:58:03 AM Post #7 |
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True Blue Mate
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So how do people afford to buy houses then? How can prices continue to go up? I am assuming its similiar to how no one can actually afford their house in the US, mainly California? |
| job fell through, guess i wont be going anymore | |
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| minx | Feb 10 2008, 01:58:44 PM Post #8 |
True Blue Mate
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My Brit hubby says this kind of mortgage is common in Germany, where it is referred to as a 'multi-generational mortgage'. I imagine because families tend to stay put in their houses for generations. Back on topic. I think that people who are trading up, or migrants coming over with a lot of cash, don't have any problem affording a home. Unfortunately, that leaves out a lot of people, like the first time buyers, who are priced out of the market. I think in that situation, you need to get creative.For example, go ahead and buy that cheap crappy place out in the sticks, or the 1940's home that needs a lot of work. Put in a year or two fixing it up, and then trade up. |
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| Nanook | Feb 10 2008, 02:00:01 PM Post #9 |
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True Blue Mate
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OK, my bad for not searching more thoroughly. Sorry about that. But my questions still stands. Someone has to own these houses. We're looking near the Richmond area and that is not the hoity toity area of Sydney, but darn near unthinkably exxy to us. Also, we take for granted the interest write off here, but am sure its not that way there. Whatever affordability you thought you might have (if thinking like an American resident) is washed away when the taxman cometh. If my math is correct, 8% on a $500 k mortgage is $4k/mo, principal and interest (roughly). If we use the US maxim of only 30% of gross income should go to shelter, then you'd need to make north of $136k a year in Oz just to afford a "normal" house. How do people do it? Are the owners just beneficiaries of a booming market? If so, then watch out...the US model tells us a massive bust is coming. No time to buy today when prices will start crashing soon. |
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| incognito | Feb 10 2008, 02:47:52 PM Post #10 |
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Chatterbox
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I think there are a lot of people who got into the market before everything went nuts, and they are able to trade up, cash in equity, etc to get into those very expensive houses. We have plenty of friends in the Northern Beaches of Sydney who married their high school sweethearts, bought small units to live in for years, and have traded their way up to some very nice houses in really nice suburbs. None of them make staggering amounts of money, though they do well not not crazy well. However, not ONE of them would be able to buy their homes right now if they were just starting out. They are all in their late 30s/early 40s and are in a sweet position. Just an example. Here in Canberra we know lots of people who lived at home rent free for ages while they had good paying jobs so they were able to save up decent deposits, and probably got some help from mum and dad with extra $$, and they got in before prices went haywire. They are also in a sweet position. In general I think that if you are already on the proverbial property ladder you are in a much better position, especially if you have any investment properties which give you the advantage of tax writeoffs. It was the same for us in California. We bought our townhouse at a good price right before everything went crazy where we were. That foot in the door was all we needed. I think that here, finding the foot in the door and living in something you don't love for a while, or renting while owning an investment property, or something similar is probably necessary for a lot of people. I don't think first time home buyers are buying those really expensive houses you see unless they are coming from overseas with heaps of cash, or they somehow came into huge deposits some other way. Of course they may have landed dream jobs that pay them really well... |
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| Nanook | Feb 10 2008, 03:25:17 PM Post #11 |
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True Blue Mate
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Good points Incog! I know that that is the way it is, but holy moley... Looks like we'll be renters for awhile. Kind of strange because I've owned my own house for most of the last 18 years. |
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| incognito | Feb 10 2008, 04:44:35 PM Post #12 |
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Chatterbox
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Yeah, it's depressing. We owned our last 2 homes in California and it's been a bit tough to rent. Although less home maintenance isn't too bad. We were only home owners for about 3 years though - I cannot imagine what it would be like to walk away from 18 years of home ownership. Le sigh... |
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| nomadbb | Mar 2 2008, 09:29:45 AM Post #13 |
True Blue Mate
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What I find amazing is how resistant I was to purchasing a house in the US at first. I had a stable rent and good landlords and didn't need much space. Did that for 10 years. But that all changed once Mandy arrived. I had the entire upstairs of a typical Cape Cod style house, and suddenly, my 1 bedroom, 1 bath was feeling the size of a shoebox! :eek: Now that we've owned this place for over 6 yerars, it's going to be hard to walk away! Eventually, it will become too small, though, and a newer 4 bedroom, 2 bath home in this area (one hr outside NYC) with central air is about the same as Melbourne. I think even with the terrible VIC stamp duty, we might make up the difference in a few yrs compared to the avergage taxes of $10K/yr for 1/2 acre (or less!). I understand that council fees are only around $2K/yr or so. Here's an interesting link I found on predicted trends in the Australian market over the next few years: http://www.yourloanchoice.com.au/news.asp?news=38 Brent |
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| dave2006 | Mar 2 2008, 03:19:20 PM Post #14 |
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True Blue Mate
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Interesting article Brent. I was wondering re: your analysis of buying near NYC vs Melbourne if you have also taken the large difference in interest rates in the US and Australia into account. Seems to me you'd be paying a lot more interest in Aus vs the US, which if correct would mean your repayments would be higher in Melb. The fact that interest rates are heading in opposite directions in the two countries would only seem to make this difference larger in the near future at least. |
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| nomadbb | Mar 2 2008, 05:17:03 PM Post #15 |
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True Blue Mate
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Hi Dave, Good point. Yes, I know the interest rate there is variable and around 9% right now (esp for the offset accounts, which tend to be higher), and here I've locked in at 5.35%. I'll probably have to save over $200K before we could buy a house there for anything close to our current payment, and that would be AFTER we sold this place. Instead of thinking that way, I'm instead comparing similar houses here and there. Our current maintenance fee would hopefully disappear there, so that could help also. Here's an example from an actual property I could purchase in my town. Property taxes are $12,000 and I chose a 5.5% fixed interest rate, similar to what we locked in. Purchase Price: $499,000 Downpayment: $100,000 Mortgage: $399,000 :eek: Closing Costs: $14,970 Monthly Payment Mortgage: $2,265 Insurance: $166 Taxes: $1,000 Total: $3,432 Using another property, increasing interest to 9% and reducing the property taxes to $2400 a year, I get $3577 (includes US homeowners insurance so that could be off, plus that council fee could be inaccurate), so it's only slightly more out of reach in Melbourne. Of course, that could keep changing if the rates do, but not much I can do there. Oddly, because Mandy's parents have offered us the use of their addition while we get settled, we'd be able to sock away more cash than we could here with our current mortgage payment and interest rate (we'd just pay for our own expenses and a token rent). That's really the only thing that makes this feasible in my mind. Brent |
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| SanDiablo | Mar 2 2008, 05:44:50 PM Post #16 |
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True Blue Mate
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Sheesh. $10,000 per year in property taxes? I guess Proposition 13 wasn't such a bad deal for California after all... Since you are being so thorough, don't forget that mortgage interest is not a tax deduction here, so figure in ~20% less tax savings compared to ownership in the US. I find the psychology of home ownership is a little different here. It is not treated so much like an investment here. Sure, plenty of people are able to sell off their homes to buy their retirement homes, but people don't buy with a mind towards gaining appreciation, and the high closing costs put a damper on that sort of selling. It's like 40 years ago in the States, where you bought a home to raise a family, not because it is a path to wealth. |
| "I'll try anything twice." | |
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| nomadbb | Mar 2 2008, 08:18:29 PM Post #17 |
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True Blue Mate
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Hi again Audra :wave: I know. Financially, everything about this move is just terrible. And I've got to admit that before I joined YDU I just wanted it all to go away and to have Mandy magically not miss her family and want to stay here. But now I find that I really want this to work, and it's all because of the folks here on YDU. :ta: My goal for home ownership is to buy our dream house (within reason of course), once, and never move again. When we bought this townhouse, we settled for 2 bedrooms and no garage, and the fact is, I could stay here forever if it could handle another child. It's not perfect, but we've really made it our own and everything was done together. There are a few things here and there that I might do, but that's about it. The problem is that even though the basement is finished, the only exit is a casement window. This is great for movies, and we have a projector set up with a heavy curtain over it, so we can watch any time we want. And with 2 futons, we can sleep 4 more people down there (and have, when we had Mandy's parents, my Dad, sister, and her two sons here over Thanksgiving). Not bad for 1500 sq ft. But, by turning it into an illegal 3rd bedroom (NY requires two exits and windows must be of a certain size to count), we'd be putting our daughter's life in jeapordy if there were a fire, and I could never do that. :nono: Bottom line is sooner or later, we'll have to move, and then it would be hard to even buy back our current place unless we qualify on both incomes. We qualified for this mortgage based on my income alone, because Mandy had no job and no green card (couldn't even put her on the mortgage without one!) The house cost us $187,000 in 2002, and it was a struggle at first. We almost never ate out, looked for everything cheap or free to do, and watched the accounts like a hawk. Now, this is partially because we refused to stop investing and putting money in the 401K. I actually make a pretty decent living (IBM's not known for the best salaries, but I can't beat the flexibility  ) Once Mandy found work, everything changed. We now can eat out any time we please, and I refinanced the house from a double mortgage at 7 1/8% and 8% (to avoid PMI), to the nice fixed rate we have now with no PMI, saving $300/month in the process. My current payment for P&I is just under $1000, with another $350 or so for taxes ($4500 I think last year), plus $240 maintenance fee (non tax-deductible). By my estimation, the house is now worth about $280K (had been over $300K at one stage) We even contemplated having Mandy quit her job when Alexandra was born, but ultimately I'm glad she chose to keep it. We're still adjusting to child care costs, but it would probably go back to being a struggle if she quits.At this point, I think I can live with selling in a down market, as long as I can get the international transfer. I think I can live with having to pay $10,000 to move everything overseas, and another $15,000 for one used car (even though both of ours were purchased new and are now paid off). I just need to sort out those darn taxes, because one thing I can't live with is losing a significant portion of my retirement and social security due to double-taxation, or being so restricted in investment choices for the same reason. I plan to call your contact in Sydney tomorrow and hopefully I can put that one to rest also. Brent |
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| dave2006 | Mar 2 2008, 10:03:33 PM Post #18 |
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True Blue Mate
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Good luck Brent. I for one would be interested to hear what you find out. Because you are concerned about retirement income, and if you may be planning on remaining in Australia for retirement (ie this may be a "no return" move), you may also want to inquire about Aussie pension/retirement benefits. That is, what you and your wife could expect to receive from the Aussie government when you retire and/or reach pension age. I don't know much about this, other than the amount you receive is based on your assets. Perhaps folks in the forum know a bit more than me and can comment. The governement agency that handles this sort of thing is Centrelink I believe. |
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| SanDiablo | Mar 2 2008, 10:14:34 PM Post #19 |
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True Blue Mate
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Brent, I know I'm coming across like a negative nellie. I re-worded my post a dozen times to soften it up...I don't mean to dissuade you in anyway. In the end, important decisions that impact your quality of life cannot be derived from simple equations or spreadsheets. It may take a leap of faith to listen to your heart in the face of statistics that shout against the wisdom of a move. I am qualified to speak to this, because time and time again I have tossed aside reason and responsibility for adventure - often with disastrous results, but ALWAYS with a collection of great stories to tell!! She'll be right, mate! Audra |
| "I'll try anything twice." | |
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| pastrycook-136 | Mar 3 2008, 06:29:38 AM Post #20 |
True Blue Mate
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Hi Brent, Your life and investments are more complicated than mine but I believe we are a similar age (I turned 40 in November). My financial plans are as follows: I will sell my stock (IBM by the way) and 401K (this will only net me a meager $800 for both) and not worry about paying some tax on this. I will only keep a checking account and credit card in the USA. This credit card is always paid in full every month. I don't expect to earn over the foregin income tax threshold (it might be US$80,000) in Australia where I would also owe income taxes in the USA too. If I do earn more than this I will be doing well and can afford to pay some tax on my earnings above US$80,000. I will sell my condo for a profit of maybe $80,000 and transfer this money and some savings to an Australian bank account. I will rent for a year or two and then plan to buy a one or two bedroom condo. As I am single for now this is all I really need in the forseeable future. Right now I have no plans to return to the USA. I believe in crossing bridges as I come to them and I will not worry about any tax issues reguarding my social security payments. I will concern myself with this in 25 years when it becomes an issue for me. By this time I should also have built up some Australian benifits and investments too. There are many people in this world who have perfect financial situations and they are miserable or bored with their life. I may not be the best investor or financial planner or tax avoider but my happiness and lifestyle is much more important than this. My thrifty ways have always come through for me in the past and I will rely on them in Australia too. Jed |
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