Buying a home for the first time can be a daunting experience, arguably more so in 2021 given the events of the last 12 months. We’ve put together a guide with our top tips for prospective first-home buyers to help streamline and de-stress the process.
The property market has a red-hot start in 2021, with national housing values rising 0.9% in January, surpassing pre-COVID levels by 1.0%, according to CoreLogic. It was the fourth consecutive month of increases and the national index now sits 0.7% higher than the previous September 2017 peak. The January results sets the precedent for further price rises this year, supported by record-low interest rates and relaxed lending laws. The major headwind to further record-high house prices is major COVID outbreaks and subsequent lockdowns.
Part of the reason prices are being driven up is demand is far outweighing supply. CoreLogic reported national total listing numbers were 27.8% lower in January than they were at the same time last year and 29.3% below the five-year average. What stock is on the market is quickly being snapped up, with the number of national home sales over the three months to the end of January 23.9% higher than the equivalent three month period from a year ago. The year has started as very much a seller’s market, but with new listing numbers expected to rise over the year as confidence grows, market conditions are expected to settle.
Here’s our top tips if you’re buying your first home this year:
Making the leap from rental payments to home loan repayments can often be a harsh one. However, in today’s record-low interest environment, the gap between these payments has almost never been smaller. Our Smart Booster Home Loan has an advertised rate of 1.99% p.a. (2.47% p.a. comparison rate). With a home loan of $400,000 repaid over 30 years, your monthly repayments would be only $1,476, or $369 a week. According to Domain, the median weekly asking rent for houses and units in the December quarter was $469 and $432 respectively. While this is just an example of how rents and repayments could match up, with your loan amount and possible asking rents differing greatly based on your circumstance, it does evidence you may be better off putting your money into a home you own and building equity.
If you’re buying your first home, there are a number of government schemes which may be able to help you out. The First Home Loan Deposit Scheme (FHLDS) allows first-home buyers to purchase a home with only a 5% deposit and not have to pay Lenders Mortgage Insurance (LMI). The Federal Government essentially acts as a guarantor and waives LMI, which can often rack up into the tens of thousands of dollars. There are also a number of State Government First Home Owner grants available; for example, in New South Wales, first-home buyers can receive $10,000 towards their new home provided it is valued at less than $600,000 for new homes or $750,000 for new home buildings. Check your appropriate State Government website to see whether you’re eligible.
When shopping for a home loan, potential borrowers are often steered towards advertised rates. However, these don’t detail the true cost of the loan, whereas the comparison rate does. The last thing you want is to take out a sub 2% loan with a comparison rate more than double the advertised rate. You should also consider the upfront costs of a home loan, like stamp duty and LMI. First-home buyers can often take advantage of concessions for these, but if you’re ineligible you may have to fork out tens of thousands of dollars upfront. Finally, you should be certain you can afford to make the repayments on the loan prior to taking it out. Getting into mortgage stress and missing repayments isn’t good for you or the lender, so take stock of your finances and budget accordingly.
If you’re a prospective first-home buyer, it’s worth sitting down and figuring the next stage of your life prior to getting a loan. A home loan often ties you to the home you buy and hence the location. If you’re buying an apartment in the city, that may not be suitable if you’re looking to start a family soon. Consider where you’re at in your life and if the location of where you want to buy suits the lifestyle you want for the next five to ten years.
An offset account can be a great way to save money on your home loan. It functions like a normal transaction account would, where you can deposit and withdraw funds as you please. The money in the account is offset against your home loan debt, reducing the amount of interest you’re charged on the home loan, potentially saving you tens of thousands over the life of your loan, An offset account is available on the Smart Booster Home Loan, as well as our Smart Home Loan.
Experts are tipping there to be a flurry of buyers with lower than usual advertised stock, depending on where you are in the country. More stock is expected to flow into the market as the year goes on, but getting in early could see you nab a bargain. Competition for a property is expected to be fierce, so an early offer may put you in better stead with the seller.
Researching the suburb you want to buy in is always vital when buying a home, but even more so this spring. With house prices falling across the country for five consecutive months, it’s worth researching what other properties have been sold for and selling for in the area to see whether the house you’re interested in is selling for a suitable price. Having this information also gives you great leverage when negotiating with the seller.
If you’re a first-home buyer and want to see how much you may be able to borrow with us, check out our borrowing capacity calculator.
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