Can good rental history substitute for a house deposit? Young Australians struggle with home ownership dream

Missy Harwood grew up thinking that — like for her parents before her — home ownership in Tasmania was an achievable dream.

Now she is losing faith.

“With the prices in Tasmania, it’s unattainable,” she said.

But the 30-year-old mother of two has some ideas about how to make home ownership a reality.

She would like banks to recognise rental history as evidence of the capacity to service a home loan, rather than requiring increasingly larger deposits.

Mrs Harwood works part time and her husband works long hours as a sub-contractor earning more than $100,000 a year.

But even with their salaries, the rapidly rising house prices keep pushing the required deposit further and further out of reach.

Now they fear they’ve missed the boat.

“I underestimated how tough it was going to be,” Mrs Harwood said.

“We’re at the point where it’s going to take such a long time to save the amount the banks are wanting, because house prices are so big.

Rising cost-of-living pressures are taking an increasing toll on the family’s ability to save a bigger deposit.

Their heating bills are around $1,500 a quarter because their rental home is poorly insulated.

Day care for their two children is costing them $14,500 a year, eroding the benefit of Mrs Harwood working part time.

Petrol prices are also on the rise.

“My husband being a tradesman, he travels all around Tasmania and it’s just massive — the bills are hundreds of dollars a week just for petrol,” she said.

“We’re really feeling it’s getting tougher to even think about buying a home at the moment.”

There is also the $920 a fortnight the couple spend on rent.

Mrs Harwood said governments should speak to banks about including rental history as proof for servicing a loan.

“The fact that they’re not doing that I think is extremely backwards,” she said.

She thinks there would be flow-on benefits for the tight squeeze on the rental market.

“There is a problem when you have people renting that can clearly afford to service a mortgage and then you have people who can’t get a rental,” she said.

It is an idea that homelessness advocate Kate Kelly backs.

“I think it’s a fantastic idea,” the Hobart Housing with Dignity Reference Group member said.

“We have a whole cohort of people who would ordinarily be first-home buyers who are trapped in private rentals at the moment because of the market.”

Banks offer small-deposit loans… for a price

Economist Cameron Murray said some lenders do approve loans to people with low deposits of 10 per cent and use rental history as evidence of being able to service the mortgage.

But he said there was a catch — interest was set at a higher rate for loans with smaller deposits.

“Typically 3 per cent or above currently, where the discounted first home buyer loans are typically below 2.5 per cent,” he said.

“So that’s a pretty substantial increase on the interest rate that you’re paying to get that higher risk [loan] … and get you into the property market sooner,” he said.

Mr Murray said the 2017 banking royal commission encouraged banks to reduce risky lending.

“That’s the tightrope we walk with financial policy in Australia is providing access to people who want to buy homes and get them a mortgage but also limiting access so we don’t have too many high-risk borrowers in the market.

“I think we’ve got to be careful about focusing on small local policy tweaks when the problem is a global one driven by global financial systems.”

In a statement, a spokesman for the Australian Banking Association said: “We understand the challenges in trying to save a deposit to buy a home.”

He said banks took into account existing expenses, including rent, when assessing a person’s suitability for a loan.

“[But] the ability to demonstrate genuine savings and having a deposit are important.

“It provides the borrower with some equity in their home from day one and reduces the size of the loan that needs to be repaid.”

Like with other parts of Australia, property prices in Tasmania have been rapidly on the rise over the last five years, driven by high demand and short supply.

Source: CoreLogic

University of Tasmania senior lecturer in economics Maria Yanotti said suburbs that used to be affordable were now far from it.

She said median house prices in the once-affordable suburb of Mowbray in Tasmania’s north had gone up nearly 40 per cent in a single year.

Dr Yanotti said wage growth in Tasmania had not kept up with rising house prices.

“That may seem affordable for the mainland but if you think of the average income here of around $50,000 to $60,000 a year, people wouldn’t be able to afford a mortgage,” she said.

Hobart least affordable capital city for rentals

For many Tasmanians, renting is no longer a cost-effective alternative.

According to the Rental Affordability Index published by SGS Economics, Hobart is the least affordable capital city in Australia.

That means the average household is spending more than 30 per cent of its income on rent.

In the state’s north, Launceston is considered unaffordable and Burnie has shifted from ‘acceptable’ to ‘moderately unaffordable’.

There is also a shortage of properties available to rent.

Hobart and Launceston’s vacancy rate is at less than 1 per cent.

“There’s not much stock available, some of the stock has been put on short-term accommodation as well now with tourism opening again,” Dr Yanotti said.

Renters kicked out to make room for short-stay accommodation

Tasmanian Liam Kenna is moving house for the third time in five years.

“This has been like the biggest just general pain point in my life,” the 23-year-old said.

“It’s caused me the most frustration and it’s probably the thing I am most passionate about.

Mr Kenna’s rent has increased and he says he has friends who rent in Melbourne, “and it’s cheaper there”.

One of the properties he has lived in has been converted into visitor accommodation.

“The vacancy rate is really what scares me and just the idea of turning up and there is a swarm of people who are also applying and you’ve got to really make sure you get noticed,” he said.

Mr Kenna would love to buy a home of his own one day and has been saving for a deposit.

But despite working full time as an IT consultant, he feels he has already been priced out of the market.

“It’s crazy with houses especially. I’ll see them on the market for like $1 million and they’ll be gone in two weeks. It’s crazy,” he said.

He is now considering buying land in a regional area and building a small home.

He said it was the only realistic way he would be able to enter the property market in the future.

That is in contrast to the experience of his parents, who were able to afford to buy a family home in Devonport when they were younger.

“I’d say that I feel quite jealous because I’m aware that buying land further out is not going to appreciate at the same rate — but that train has left. I can’t get on it now.”