The flow-on effect of unattainable house prices has been seeing young people saying bye-bye to car ownership, in favour of saving for a mortgage.
And as property prices finally fall, it’s a strategy that could pay off well in the near future.
For young people who have already ditched the car in favour of more affordable public transport options, having access to added savings now could be a positive way to get a foot in the door of the falling property market. Of course, the opportunity to boost savings should never be ignored and by getting smart about better budgeting, the long-term results could mean thousands of extra dollars in your bank account.
According to a recent Household, Income and Labour Dynamics in Australia (HILDA) survey, the number of young Australians taking up driving licenses at the ages of 18-19 had declined 6 percent in the period between 2011-2016 – a figure that leaves less than two-thirds of 18-year-old men and women licence holders.
Across the same period of this study, the median house price in Australia’s capital cities climbed from $497,059 to $713,433 – which represented an increase of more than 43 percent, according to data from the Domain Group.
At the time of the study’s release in October 2018, one of the co-authors of the HILDA study, Roger Wilkins, said the numbers in the decline of licence take-up represented a significant drop at a younger age and pointed to the impact of higher costs and entry requirements that had placed increased downward pressure on the number of young drivers.
But things are changing and as the local property market faces a sharp decline – a decline some experts say is one of the steepest in the world – those who traded car ownership for saving or spending on other things may now decide to change their habits and apply for that car loan they may have previously seen as a luxury. The impact of ride-sharing services, such as Uber, played their part, of course, too, and for many young people who don’t fit in the camp of people that happily make sacrifices to live without a car, having access to alternative forms of transport will likely be a trend that is not going away any time soon – no matter how house prices and other aspects of the financial market perform.
Generally speaking, though, a growing number of young people are becoming less emotionally attached to the concept of car ownership and perceive the benefits of having a nicer apartment – without the additional cost of a parking spot – as a much better trade-off.
And for the young people who are only now coming to terms with the concept that they need to choose between car ownership or home ownership, selling an existing car to boost the deposit that will help them enter the property market and take advantage of falling prices, might be one of the best financial decisions they ever make – that’s provided they understand that the gains in the property market will only come over long-term investment.
The Costs of Car Ownership
The cost of owning a car is about much more than the purchase price and interest on car loan repayments.
Running costs that need to be taken into consideration include insurance, petrol, maintenance, cleaning and depreciation – plus, of course, registration. Then there are the associated fees that come from car ownership that include parking fees (and no doubt, the occasional parking fine!), as well as tolls on freeways.
With that in mind, it’s easy to understand why a growing number of young people have seen a direct link to car ownership having a negative impact on their ability to save for and service a property mortgage.
No matter what your opinions on that may be, one thing is clear – any personal finance application should always be entered into very wisely, with the right research that lets you crunch the numbers accurately and weigh up the pros and cons of what may – or may not – be best for you and your current financial circumstances.
If you know a young person who would like more information about whether they are eligible for a successful mortgage application, contact our team of mortgage broking professionals at Lending Specialists today.