Report finds millennials are eager to buy property post-COVID, but should they?

Coronavirus hasn't stopped millennial's from wanting to buy their own home. Will you? Image source: Prostock-studio, Shutterstock.

Millennials remain optimistic about home ownership despite the current array of risk and uncertainty, unwilling to let the pandemic interrupt their plans. A third say they want to buy a property in the next one to two years, new research shows.

Despite the uncertain economic recovery from coronavirus, strict lockdown conditions being re-introduced in parts of the country, unforeseen pressures on many household incomes, forecasts of dramatic property price falls, and clear evidence of mortgage stress, many millennials are still hopeful of owning their own home – and soon.

Research commissioned by ING and outlined in its Future Focus: Homeownership Report, released today, showed 46% of young Australians surveyed believe COVID-19 has made ownership more affordable and achievable.

In fact, a clear majority (77%) of millennials surveyed agreed home ownership was an important goal, while three-quarters (75%) said they aspired to own their own home, including 32% who said they wanted to buy a property within the next two years.

Record-low interest rates, a more affordable market and new government schemes were found to be among the key factors contributing to this outlook.

→ Related story: The best home loans for first home buyers

Across all generations, ING found those looking to buy within the next two years were motivated most by rental fatigue (45%), a desire for stability and security (22%) and “future proofing” themselves (19%) by investing in property.

And they’re willing to make compromises elsewhere in the budget to achieve the home-ownership dream, with over half (51%, including 59% of millennials) saying they’d already sacrificed some of their travel money towards a future home savings account, and significant numbers saying they would “continue to minimise their lifestyle costs” after the pandemic, including by reducing personal shopping (40% overall, and 48% of millennials) and cutting back on dine-out food (37% and 42% of millennials).

More than two-thirds (69%) of respondents reported they had been forced to take better control of their finances due to the pandemic and 42% said they had been able to save more money while in lockdown.

ING’s findings were based off two surveys conducted by YouGov in June 2020: a nationally representative sample of 1,057 Australian adults who were prospective home buyers and another sample of 1,056 Australians aged over 18 years.

Millennials are keen, but is now a good time to buy property?

While it’s true interest rates have hit record lows, with loans now available to some Australians at rates under 2%, many households have struggled to make repayments and keep up with household bills during the coronavirus fallout, having had their working hours reduced or suffering the unexpected loss of work entirely.

Some economists are worried that once JobKeeper payments end in September and six-month mortgage repayment holidays finish up, many of those cash-strapped households will be at even more risk.

Data released by Digital Finance Analytics in June found more than 1.4 million households were in mortgage stress at the end of May, and the research firm expects many of these borrowers could be at risk of defaulting on their home loans when the repayment relief ends.

It’s not just the ability to repay a mortgage in this environment that is weighing heavily on experts’ minds, but also how property market prices will withstand the financial impacts of COVID-19, including the recession it has caused.

The longer-term outlook for property remains highly uncertain, according to CoreLogic head of research Tim Lawless.

“While it is encouraging to see lenders have recently hinted at an extension in their repayment leniency policies, the government stimulus will eventually taper and banks will require borrowers to repay their loans,” Mr Lawless said.

“The longer term outlook for the housing market is largely dependent on how well the economy is tracking when these support measures are removed.”

The latest CoreLogic Home Value Index showed housing values dropped by 0.70% in June, following a 4% decline in May.

→ Related story: Where property prices have fallen the most since COVID-19

Canstar finance expert Steve Mickenbecker said property ownership is typically a very good predictor of a comfortable financial life, but where it can get tricky is timing.

“If we hit a rebound of the virus, while it’s likely to be short-lived, we could still see a significant fall in property prices,” Mr Mickenbecker said.

“A major risk at the moment is if you get into a new house with a 10%-15% deposit and the market falls by 15%, then all of your savings will have been eroded.

“You’d love to be able to sit on the sidelines and pick the moment when the market bottoms, but first home owners shouldn’t expect that they’ll get the absolute bottom. No one can pick market bottoms consistently.”

He said the other risk was that some people could lose jobs and end up in an uncomfortable financial position.

The official unemployment rate was at 5.1% prior to COVID-19 and has since increased to 7.1%, based on data from the Australian Bureau of Statistics. ANZ economists expect that figure could rise to a peak of 7.5% in the fourth quarter of this year.

On a positive note, Mr Mickenbecker said it was a great time to be borrowing money if you could afford to do so and get approval for finance, because interest rates have never been lower.

Canstar’s home loan database shows the average standard variable interest rate for owner-occupiers paying principal and interest is 3.50% and the cheapest is 2.19% (comparison rate 2.19%).

Some borrowers may even be able to secure home loan rates starting with a ‘1’ if they are willing to lock into a fixed loan.

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If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value and that offer an offset account. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning

Ellie McLachlan

Former Content Lead

Ellie McLachlan is the former Content Lead at Canstar, helping to shape and deliver the content strategy. She specialises in covering mortgage and everday money topics and breaking finance news. An experienced journalist, Ellie has made her mark working in digital, broadcast and print media, serving in positions such as Editor at News Corp Australia's Compare Money and also News.com.au's Best Of Money, as Story Strategy Coach at the Australian Conservation Foundation, as a lifestyle reporter at The Urban List, The Courier Mail and The Sunshine Coast Daily, as well as radio presenter at 4ZZZ. While at Canstar, Ellie has written well over 500 finance articles and her work is regularly referenced by other publishers, including Business Insider, The Motley Fool and The New Daily. Her expert financial commentary has been featured in publications such as Yahoo Finance and the Herald Sun. Ellie studied a Bachelor of Journalism and Arts (Peace and Conflict Studies) at the University of Queensland. Follow Ellie on LinkedIn, Twitter, and Canstar on Facebook. Meet the Canstar Editorial Team.