The first home buyer

Entering the property market as a first home buyer can be exciting and daunting, and saving for the deposit can be hard. However, the government has introduced a few grants that could help eligible first home buyers.

The investor

Whether you’re new to investing in property or building your portfolio, your goals should take into account your investment strategy. Do you want to be negatively geared to generate wealth or are you investing in property to create a passive income stream for retirement.

The upgrader

Larger homes, are typically more expensive; therefore, factor this in when setting your goals and understand how this may impact your budget – will you need to make sacrifices to your current lifestyle to service the loan?

Reaching your goals

There are many different approaches when it comes to goal setting. You’ve likely heard of SMART goals, which are Specific, Measurable, Achievable, Relevant and Time-Bound.

Identify each of your goals and consider what steps you need to put in place to achieve them.

As you begin setting your property goals, think about how these goals will influence your family’s day-to-day life, as this can impact your decision making.

Purchasing considerations

If you’re a first home buyer, identify how much you will be able to borrow, as this will determine how much deposit you’ll need and whether you’re eligible for any home owner grants. Other costs that may be associated with purchasing a home can include a conveyancer/solicitor as well as building or pest inspections. Plus the cost of furnishing the home, so it’s important to understand exactly how much your initial outlay will be.

For the investor, you might be working towards a specific amount in passive income you want to generate, or you may want to own a set number of investment properties by a certain age.

If you have equity in your current home, you could use that to purchase an investment property, or perhaps buy a property off the plan, as these properties can sometimes be less expensive than an established home.

It’s also important to factor in the potential rental returns in the area you are looking to buy. Investment properties require regular maintenance, so having an emergency fund could be a good idea.

The upgrader may have a floorplan in mind or be looking to move to a new area. Again, factor in how you are going to service the loan and other costs associated with the upgrade. You’ll probably need to purchase additional or different furniture to fill a larger home.

Sticking to your goals

Sometimes we can lose our way with our goals by setting a framework that is unrealistic. If you’ve set goals that are unachievable – especially when it comes to budgeting – it can be challenging to see them through. Perhaps you decided to save for a deposit but are finding the lifestyle sacrifices are too much. Leaning on your support network as a reminder as to your ‘why’ can be helpful.

Visualising your goals can also be powerful. Imagine getting the keys to your investment property or moving into a bigger house – these thoughts can often keep you motivated. Tracking your progress regularly will not only keep you working towards your property goal, but it can help you recognise the small wins and where you might need to adjust your goals.

And finally, be accountable – share your goals with others so you can feel more motivated to reach them.

If you are considering purchasing a property in 2023, we are here to help so contact us today.

National Housing Accord

In the October Federal Budget, prospective first-home buyers were thrown a new lifeline with the National Housing Accord.

Treasurer Jim Chalmers announced an accord between all levels of government, institutional investors and the construction industry, which would see 1 million new “well-located” homes built over five years, starting in 2024.

The budget committed an initial $350 million in additional funding for 10,000 affordable homes, on top of existing commitments. State and territory governments would match the 10,000 home pledge, meaning 20,000 dwellings will be delivered per year.

First Home Owner Grant

Each state and territory has its own First Home Owner Grant with different eligibility requirements.

In some states, first-time purchasers can receive a one-off payment when buying a newly built home or purchasing vacant land, while in other states, the grants have been replaced by stamp duty (also known as transfer duty) concessions. To understand what’s on offer in your state or territory, visit First Home Scheme.ⁱⁱ

First Home Guarantee

While lenders traditionally expect first-home buyers to provide a 20% deposit (or less with Lender’s Mortgage Insurance) this scheme helps buyers with a 5% deposit. The Government will guarantee 15% for eligible purchasers.

The initiative (formerly First Home Loan Deposit Scheme) has pledged 35,000 spots until 30 June 2023.

Single first-home buyers can earn up to $125,000, while couples are capped at $200,000 a year, depending on eligibility. Limits on purchase prices also apply and can be found at National Housing and Finance Investment Corporation.ⁱⁱⁱ

This package isn’t just for first-home buyers. The Federal Government will co-purchase a property with eligible homebuyers. The buyer requires a 2% deposit, and the Government will contribute up to 40% towards the purchase.

Homeowners can choose to either buy the portion of the home (co-purchased by the Government) during the life of the loan or sell it and repay any money owed along with the share of any capital gain. This scheme is due to commence from July 2023.

Regional First Home Buyer Support Scheme

Saving for a deposit

Although residential home values are falling across most of the country, it is still quite a challenge to come up with a deposit. While the rule of thumb is a 20 per cent deposit, some savers buy with a 10 per cent or 5 per cent deposit and either pay lenders’ mortgage insurance (LMI) or use a first home buyer scheme that allows low-deposit purchases but waives LMI.

In any case, that all-important deposit can be a significant sum to save but there are some valuable tools that can assist you. There are many online calculators such as this one from Savings.com.au that can help you determine how much you’ll need, and what you can afford.ⁱ

To get a hand with the savings side of things there are a heap of apps to help you get a handle on and manage your financial situation. Frollo is a free budgeting app that you can use to sync all of your financial accounts, create a financial goal – like saving for a deposit – and track your progress.ⁱⁱ

We are also here to let you know how much you can borrow and what your budget and deposit will need to be.

Financing your loan

The finance side of things can be tricky to navigate alone, and we can assist you to find the best deal and navigate the process and necessary paperwork.

There are also several government grants and schemes available for first-home buyers both at the national and state level and we can assess what schemes you may be eligible for.

Searching for the property

To save you time and effort in your search for the perfect property, online real estate websites often have profiles of different suburbs and towns. Real estate institutes offer property data that lets you compare sales prices across locations.

It allows you to get to know the real estate agents in the area where you want to buy, let them know what you are looking for and have your name added to their mailing lists.

The purchase of property is still summarised by the Latin phrase ‘Caveat Emptor,’ meaning ‘let the buyer beware’. This puts the onus on the buyer to ensure they are satisfied with the condition of the property before signing the contract.

A house inspection can be an easy way to discover any potentially expensive problems. Consumer Affairs Victoria’s Inspect properties before you buy has some good tips about house inspection services.ⁱⁱⁱ

Buying

It took the Reserve Bank just seven months to move the official cash rate from an historic low of 0.10% in April to 2.85% by November. The last time the RBA sent the rate up by 2.75% it took more than six years. Therefore, it isn’t any wonder why home values are falling – there’s been a shock to the system.

Although this shock has been short and sharp, and values are declining as a result, prices across the country are still well above pre-pandemic levels. Property experts are not yet willing to call the ‘bottom’ of the cycle, however, the RBA’s change from 0.50% to 0.25% increments is expected to calm the immediate panic.

Property past its peak

Figures from PropTrack (realestate.com.au data business), show national values are -3.81% off their peak. National annual price growth is now sitting at -1.08%, the slowest pace since August 2019.

Sydney is the city with the biggest gap between November 30 and its peak, down -6.28% according to PropTrack while Melbourne is -4.75%.

Across the capitals, Darwin (-0.49%) led the price declines. In Canberra, prices are now 0.54% below their level a year ago. Hobart prices fell 0.27% in November to sit 2.92% below their peak in April. However, prices remain 1.06% higher than levels seen in November last year. Adelaide is currently at its peak.

It’s all in the numbers

According to the CoreLogic national Home Value Index, by November’s close there had been seven months of consistent declines. The index revealed that over the last three months, national home values were down to a median of $714,475.

During the same quarter, Brisbane has been home to the sharpest decline, recording -5.6%.

Sydney and Hobart followed with identical declines of-4.4%.

Canberra recorded a -3.8% dip, with Melbourne recording -2.7%.

Adelaide, Darwin and Perth felt minimal movement under 1% with falls of -0.8%, -0.6% and -0.5% respectively.

When CoreLogic number crunchers put the capital cities together there had been a combined slump of -3.5% and regionally values fell similarly by -3.6%.

Pace of declines easing

Although values are falling across the country, data shows the pace of declines has actually eased over the past three months across Sydney and the past four months in Melbourne, with many other smaller capitals and most regional markets also seen the pace of declines decelerate.

Tim Lawless, CoreLogic’s research director, said while values have been in negative territory for several months now, it’s still too soon to call the trough of the market just yet.

“There is still the possibility that the pace of declines could reaccelerate, especially if the current hiking cycle persists longer than expected,” he said.

“To-date, the housing downturn has remained orderly, at least in the context of the significant upswing in values. This is supported by a below-average flow of new listings that is keeping overall inventory levels contained,” Mr Lawless added that we’re yet to see the full impact of rate rises as households likely still hold excess savings accumulated during lockdown, plus there is a large cohort of fixed rate borrowers who’ve so far been insulated from rapid rate rises.

Despite the nationwide price falls, CoreLogic reports housing values are still above pre-Covid levels, which would imply most homeowners are sitting in a positive valuation position relative to their purchase price – as long as they bought before the pandemic.

For expert advice on buying in the current market, contact us today.

Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (November 2022)