A Big Four bank has revealed first-home buyers who had given up on ever affording a city home have instead found another way to climb the property ladder.
Westpac has commissioned research showing 54 per cent of property newcomers are open to the idea of ‘rent-vesting’ – where they continue to rent a home to live in, but buy a cheap investment property to rent out.
Damien MacRae, Westpac’s managing director of mortgages, said first-home buyers had accepted their first home could not be close to work and lifestyle areas, but still want to invest in a property.
‘Rent-vesting is growing in popularity as more buyers look to get their foot on the property ladder sooner, particularly in capital cities where housing prices are typically higher,’ he said.
Someone earning an average, full-time salary of $100,000 can only buy a $650,000 house with a 20 per cent mortgage deposit.
That kind of budget would no longer buy a typical house in Sydney, Melbourne, Brisbane, Perth or Adelaide.
In Sydney, apartments typically selling for $857,969, CoreLogic data shows, which means a house is only possible if it is at least 100km from the city centre in an affordable suburb on the Central Coast.
Australia’s median capital city house price last year climbed above $1million, as borrowers typically paid close to $1.5million for a Sydney home with a backyard.
A Big Four bank has revealed a majority of first-home buyers have given up on the idea of being an owner-occupier borrower at a young age (pictured are women at a Sydney auction)
But in regional areas, houses are more attainable with $670,346 the median price in January.
With many younger people needing to be in a major city for career opportunities, but only able to afford a home in the regions or distant suburbs, rent-vesting was likely to become even more common if interest rate cuts make mortgages more affordable.
In New South Wales, 61 per cent of first home buyers were considering rent-vesting, which was higher than Victoria’s 54 per cent level and Queensland’s 52 per cent.
The Big Four banks are all expecting the Reserve Bank of Australia to cut rates on Tuesday, which would be the first relief to borrowers since November 2020.
Westpac and the Commonwealth Bank are expecting four rate cuts in 2025, that would see the cash rate fall to 3.35 per cent, from 4.35 per cent now.
A first-home buyer with a $522,000 mortgage would see their monthly repayments fall by $85 with one rate cut and by $335 with four rate cuts.
A potential saving of more than $4,000 in mortgage repayments is expected to boost house prices, with banks able to lend more money.
Westpac senior economist Matthew Hassan said rate cuts were likely to entice more rent-vestors into the market.
Westpac has commissioned research showing 54 per cent of property newcomers are open to the idea of ‘rent-vesting’ – where they buy an investment property to rent out rather than live in (pictured is a Bondi rent queue in Sydney)
Damien MacRae, Westpac’s managing director of mortgages, said first-home buyers had accepted their first home would not be a house in a big city
‘Interest rates are almost certainly having an influence here,’ he said.
‘Last year high rates deterred buyers, but the possibility rates will move lower appears to be shaping would-be buyer plans.
‘For rent-vestors the potential rate moves bode well for increased buying power.’
Mr MacRae said rate cut expectations had led to more first-home buyer enquiries.
‘More Australians are entering 2025 planning to purchase a property than last year, reflecting renewed optimism from aspiring home buyers,’ he said.
‘We’re continuing to see strong demand from customers seeking pre-approval for home purchases across both the owner-occupier and investor segments.’
Westpac advises prospective rent-vestors to consider areas where rental yields are high, based on annual rental income as a proportion of the property price.
Westpac commissioned Lonergan Research to survey 2,000 Australian adults in December 2024 and January 2025
