Do's and Dont's for First Home Buyers

Graeme Salt

Did you spend much of 2013 looking to buy your first home but were regularly outbid by property investors? If so, 2014 could be your year.


 


Last year was tough for first home owners. Buying a property is stressful, it is doubly stressful if you have never bought a home before. But it is triply stressful, if you find yourself being outmuscled by investors who have deep pockets and are able to pay significantly more than you.


 


Figures released by the Australian Bureau of Statistics showed that this is exactly what happened. The number of first-home buyers, as a proportion of total borrowers nationally, fell to a record low of 12.3 per cent in November. Experts say strong prices growth is one of the main reasons for this drop off, forcing many to continue renting or, for the lucky ones, turn to parents for help.


 


But, many commentators see the market softening (though remaining healthy) and, as a result, investors’ ardour for the property market is cooling. This may well be the chance for first home owners to strike.


 


In a global housing and mortgage report, ratings agency Fitch said Australian homeowners would this year experience gains of 4 per cent - less than half last year's 9.8 per cent appreciation. For investors, whose main concern is investment return, this will dampen their appetite to purchase property.


 


First home owners are driven by different factors. Their concern will be factors such as:


  • Will I be happy here?
  • Can I make the repayments?
  • Is this a good way to get my feet on the property ladder?

 


A flat market tends to suit first home owners as there is little competition stretching their limited resources.


 


In addition, we have started to see a pick-up in residential construction. Developers often build the new apartments that first home owners are seeking.


 


But there are also other opportunities for first home buyers. For example, in NSW they can still claim a $15,000 grant if they buy a new or off-the-plan property priced under $650,000, and are exempt from paying stamp duty on new properties valued up to $550,000. Those valued between $550,000 and $650,000 attract a stamp duty concession.


 


Do


  • Use a mortgage broker who has access to reports such as RP Data. With them you can value a property and work out if it is affordable
  • Create a budget so you are comfortable with the loan repayments you face
  • Surround yourself with a team of professionals such as mortgage brokers and lawyers who can hold your hand through the stressful process of buying your first home
  • Talk to your parents – many banks have special schemes whereby first homeowners who don’t have much cash saved up can tap into the equity in their parents/grandparents properties
  • Talk to your parents’ financial advisors. Sometimes there are ways your parents can gift you cash for your deposit towards the home
  • Look at a number of banks. Some offer a ‘honeymoon’ loan which initially has a discounted rate to help you with cash flow while you are buying washing machines, TVs etc.

 


Don’t


  • Over-extend yourself. The last thing you want to be is a slave to the mortgage
  • Get over-emotional. Just because you fall in love with a property, it does not mean you should pay through the nose.