What Aussies Are Doing To Cope With The Cost-of-living Crisis

Mortgage holders are limiting household spending and refinancing their loans, while a rising number of young Australians are moving back home with their parents. These are some of the ways in which people are dealing with today’s cost-of-living crisis, which has been caused by the highest inflation rate in two decades along with rising interest rates and rents, according to research by Finder.

Three in four Australians surveyed in September said they were somewhat or extremely stressed about their financial situation. This includes 84% of mortgage holders, up from 76% in September 2021. Finder says almost $15,000 in extra interest costs have been added to the annual repayments of an average Australian home loan. And that was before the Reserve Bank of Australia raised the official cash rate again this week. The RBA raised rates by 25 basis points to 4.35%. That was the 13^th increase since May 2022 and takes the cash rate to its highest level since 2011.

The research cites data from the Australian Bureau of Statistics showing the total monthly value of refinanced home loans peaked at $22 billion in June. Finder says more than 70% of refinancing borrowers were going to a new lender rather than renegotiating with the existing one. However, the savings were fairly small. On average, refinancers went from a variable rate of 5.01% to 4.78%.

Graham Cooke, Finder’s Head of Consumer Research, said “the willingness of homeowners to refinance for even marginal gains underscores the pervasive cost-of-living crisis, reflecting a desperate search for any fiscal relief.” He added that millennial homeowners were struggling the most today. “This could be a sign that they jumped in when rates were at record lows and were unprepared for an environment where rates and repayments increased.”

Finder says young renters are increasingly moving back in with their parents to escape rising rents or to save to buy a home. Unaffordable rents prompted 30% to move back home. A further 30% did so to save money for a home deposit, while 14% said the loss of a job forced a change in living arrangements. Mr Cooke said interest rate rises were actually having a higher impact on renters, given landlords typically pass on higher costs to tenants through rent increases.

Cutting discretionary spending is another method of coping with rising costs. The Finder research shows 45% of Australians have cut back on dining out or ordering home delivery, 32% are shopping around for better prices, 23% have reduced beauty and self-care treatments, and 19% have cancelled a holiday. A small proportion (3%) have moved their child to a different school with lower fees.

Refinancing advice

Mr Cooke said it was important not to rush a refinancing decision. “There is a significant gap in rates offered by different lenders for comparable loan products. The best thing you can do is take the time to review and compare your home loan options to ensure you’re getting the most competitive rate. It’s never too late to find a better home loan deal.”

Advice if you’re moving back home

Mr Cooke said there was no point ‘returning to the nest’ without changing your spending habits. “Prioritising a budget is critical. Start cutting out non-essentials and look for ways you can save money. Working out all your expenses to the smallest detail will give you an idea of how much capacity you have to save.”

Tips for cutting spending

Finder says shopping around can help reduce non-discretionary spending as well. Finder recommends that consumers consider switching energy providers and insurers, and use a high-interest account for savings. RateCity recently reported that nine financial institutions on its panel are now offering savings account interest rates that are above inflation at 5.5% or more.

Take up a side hustle

Finder research also shows 35% of Australians are earning extra income through side hustle jobs like dog walking, mystery shopping, tutoring, freelancing and ride-share driving. Popular non-employed side hustles include recycling cans and bottles, making and selling goods, selling pre-owned goods and renting out a spare room or garage.

Australia’s home prices continue to grow, and while that makes them great investments, they are also some of the most unaffordable in the world.

That’s why first-home buyer schemes such as the First Home Owner Grant, the First Home Guarantee, and stamp duty concessions have become so valuable.

These programs are designed to reduce upfront costs and fast-track people into homeownership.

But the question many aspiring investors are now asking is can these schemes be used as part of an investment strategy? These government initiatives aren’t designed for investors, but they can still play a key role in your long-term investment journey if used strategically.

What the schemes actually allow

Every first-home buyer incentive in Australia is created to support owner-occupiers, not investors.

Whether it’s a cash grant, reduced deposit requirement, or a stamp duty discount, the catch is always the same in that you must live in the property for a set period of time. For example, the First Home Owner Grant often requires you to live in the property for at least six to twelve months, depending on the state.

The First Home Guarantee allows you to purchase with just a 5 per cent deposit without paying lenders’ mortgage insurance, but again, you’re required to live in the property for at least one year.

Likewise, state-based stamp duty concessions are only available for properties intended as a principal place of residence. If your intention from the outset is to buy a property solely for rental income, you won’t be eligible. However, if you’re open to living in the property initially, then transitioning it into an investment, there’s a path forward.

A strategy that works

Rentvesting has emerged as one of the most practical ways for first-time buyers to take advantage of these schemes while also laying the groundwork for a property portfolio.

The concept is simply, buying a property in an area you can afford (using the first-home buyer schemes to assist), live in it for the minimum required period, and then rent it out after fulfilling the occupancy condition.

This approach lets you legally access the benefits of first-home buyer schemes while building equity and entering the market sooner. Instead of waiting years to save a full 20 per cent deposit for an investment property, or getting priced out altogether, you get your foot in the door with reduced upfront costs.

Once you’ve satisfied the live-in requirement, the property can become an income-generating asset and even serve as collateral for your next purchase.

What to look for in a rentvestment property

If you plan to eventually convert the property into an investment, you need to think beyond your short-term living experience. It’s essential to buy a property that performs well both as a home and as a long-term asset.

That means looking at key fundamentals like location, rental demand, and growth potential. Suburbs with strong infrastructure, access to employment hubs, good transport links, and low vacancy rates should be high on your list.

A balanced price-to-rent ratio will help ensure manageable holding costs once the property transitions to an investment.

Established low-density areas often outperform high-rise apartment developments that flood the market with supply and limit capital growth. And ideally, your property should offer scope for future improvements, whether that’s a cosmetic renovation, granny flat addition, or potential to subdivide down the track.

Mistakes to avoid

There are a few common missteps that can undermine this strategy. The first is selling too soon. Some grants and stamp duty concessions include clawback provisions if you offload the property within a short period, which could see you lose the benefits or even owe money back.

It’s also a mistake to let the lure of a government handout sway your purchasing decision. A $10,000 grant doesn’t justify compromising on location, growth prospects, or property fundamentals.

Another pitfall is failing to consider the financial impact once the property becomes an investment. Repayments, tax treatment, and outgoings may change, so it’s important to stress-test your position from day one.

Lastly, beware of buying into oversupplied areas simply because they’re marketed to first-home buyers. Not all new builds are good investments. If hundreds of identical properties are being built nearby, your long-term growth could be seriously limited.

With the right approach, your first home can be the foundation for an entire property portfolio. It starts with using available government support to lower your entry cost.

From there, you occupy the property for the required time, convert it to an investment, and leverage the equity and rental income to fund your next purchase.

Many of the most successful investors today began with a single, strategically chosen property purchased using these exact schemes. By buying well, you can turn your first home into the launchpad for long-term wealth.

Abdullah Nouh is the Founder of Mecca Property Group (MPG), a buyers’ advisory firm specialising in investment opportunities in residential and commercial real estate. In recent years, his team has acquired over $300 million worth of assets for 250+ clients across Australia.