19 March 2018
Getting your foot into the door isn’t cheap, but sometimes it’s where the money is spent that comes as a shock to first-home buyers.
It’s not over once the deposit has been saved and the winning offer made. Experts have identified five areas where hidden costs might be lurking, and how a buyer can avoiding paying more than they need to.
1. Pre-purchase research
Anna Porter, a property valuer and principal at strategic property investment company Suburbanite, said budgeting for pre-purchase inspections is important.
“There’s a whole range of reports you can get – you can spend $5000 just on due diligence,” she said.
What could look like a minor issue may cost more in the long run.Photo: Erin Jonasson
Not doing the research can prove costly. Mortgage Choice CEO John Flavell said it was vital to conduct proper pest and building inspections.
“It is a small amount to pay for peace of mind and it can help you to avoid buying a property with structural faults or insect infestations,” he explained.
CM Lawyers head conveyancer Alex Sapounas said that trying to avoid buying quality building reports was also a common error.
“Unfortunately there’s no fallback position with major structural flaws.”
Strata reports were also very important, he said, particularly regarding special levies and changes to the standard bylaws.
2. Conveyancing fees
Some first-home buyers are surprised to discover they need to engage a conveyancer, or are alarmed by the price.
Rules around conveyancing vary from state to state, but Mr Sapounas said first-home buyers should be talking to a conveyancer at the start of the buying process.
Mr Sapounas said some buyers didn’t even have the contracts reviewed prior to bidding at auction.
He said it was common to see first-home buyers making mistakes that could cost far more in the long run than the $1500 to $2000 conveyancing fee.
Many did not understand the difference between pre-approval and actual approval, how much of a deposit they need, and when they could pull out of the purchase of a property.
“A lot of first-home buyers don’t even have the contract reviewed prior to auction,” he said.
3. Government and bank fees
Mr Flavell identifies stamp duty, the property transfer fee, and mortgage registration fee as government costs new buyers need to know about.
When it comes to home loans there’s the loan application fee, ongoing bank fees and the lender’s property valuation to consider.
A slowing market might impact whether on not a buyer opts for LMI, or a 20 per cent deposit. Photo: Dominic Lorrimer
Another potential expense is Lender’s Mortgage Insurance – LMI – which protects the lender from losing money if the borrower defaults on their loan, and the sale of the property doesn’t cover the money owed.
Generally, it’s a condition of borrowing with less than a 20 per cent deposit, and the cost can be included in the loan amount.
Analysis from financial comparison site Canstar shows that first-time buyers who opt for a 10 per cent deposit and LMI as opposed to taking longer to save a 20 per cent deposit could also wind up paying more overall.
It depends on the growth in property values, with 3.83 per cent annual growth being the break-even point for a $500,000 purchase. If growth is slower, buyers could be better off saving the 20 per cent deposit, but if the market moves faster, LMI is outweighed by capital gains.
4. Moving in, and moving tenants in
Ms Porter said first-time investors often don’t plan for professional cleaning fees.
“When a vendor moves out, there’s not a requirement for how clean the apartment has to be,” she said.
If the property is left in a passable condition, but not clean enough to meet the standards of a rental property, it might require a professional cleaner, and a $500-plus outlay.
Dixon Advisory’s head of advice Nerida Cole explained there could be quite a big “gap in expectation” for new buyers, in terms of what they’re prepared to live with compared to what a tenant expects.
“If you want to have a good tenant, you want to make sure property is presented well.”
New homeowners may be left to foot the cleaning bill when the vendor moves out. Photo: Steven Siewert
She added that the early period can be a pressure point for investors who expect to receive rent straight away.
“There can be a bit of a delay in the cash flow coming in from the rent. Up front there’s the property manager costs, the campaign to get a tenant – but you are paying interest from day one.”
Owner-occupiers also need to manage expectations and expenses. “It might take you two years to furnish the house properly, rather than racing in and trying to make it look like a Vogue magazine.”
5. Landscaping and repairs
Ms Porter recommends keeping aside $4000 for $5000 as a maintenance slush-fund.
“You can buy a property and suddenly the hot water dies, or the airconditioning dies and you have to replace it,” she said.
Ms Cole said the cost of upkeep for a backyard can come as a surprise for buyers upgrading from an apartment.
“Plant trimmers, lawnmowers, it does add up. When you’re a new home buyer, you don’t have much cash up your sleeve.”
There can be some surprises in moving from an apartment to a free-standing house with a backyard.
Landscaping can also be costly, especially for new builds. Ram Venkatagiri, from Financial Quotient, says that the price of structures like retaining walls can come as a shock to some buyers.
“Sometimes they cannot be determined by the builder at outset, until they perform site works after the building contract has been entered into,” he said.
He noted that blinds, curtains and security grilles aren’t always included in the price of a house and land package, adding thousands to the overall cost.
08 February 2018
Parliament has passed the legislation allowing first home buyers to save for a deposit inside superannuation through the First Home Super Saver Scheme (FHSSS) and also allowing older Australians to ‘downsize’ and then contribute the proceeds of the sale of their family home into superannuation.
From 1 July 2018, a first home buyer will be able to withdraw voluntary superannuation contributions they have made since 1 July 2017(up to $30,000 each, with individuals being able to contribute up to $15,000 a year within existing caps), along with a deemed rate of earnings, to help buy their home.
Also, from 1 July 2018, when Australians aged 65 and oversell a home they have owned for at least 10 years, they may contribute up to $300,000 from the proceeds into their superannuation accounts, over and above existing contribution restrictions. Both members of a couple may take advantage of this measure, together contributing up to $600,000 from the proceeds of the sale into superannuation.
10 May 2017
Perth’s property market continues to encourage first home buyers, with the latest preliminary data for the March quarter 2017 revealing the bulk of transactions occurred within the $400,000 to $450,000 price range.
REIWA President Hayden Groves said market conditions in the March quarter highlighted that housing affordability remains an east coast issue.
“While the dream of home ownership is becoming increasingly difficult in some parts of Australia, particularly in Sydney and Melbourne, this isn’t the case in Perth.
“First home buyers remain active and continue to take advantage of improved affordability and choice in the market to secure a property that meets their needs. These factors, combined with record low interest rates, makes for positive buying conditions for those looking for a first home,” Mr Groves said.
Median house and unit price
Perth’s median house price slipped back over the quarter, with the preliminary median coming in at $505,000 for the three months to March 2017.
“This softening in median price is due to the ongoing trend of comparatively more transactions occurring in the lower end of the market, with fewer sales of properties in the $700,000 to $1.5 million price range. However, once all transactions have been accounted for, it’s likely the median will lift to around $517,000, just shy of December’s quarterly median,” Mr Groves said.
Perth’s preliminary median unit price held up reasonably well over the quarter, coming in at $411,750 for the three months to March 2017.
“In the unit market, although there were more transactions occurring in the $350,000 to $450,000 price range, early indications suggest there was also a boost in volumes between $600,000 and $1 million, which has kept the unit median strong over the quarter,” Mr Groves said.
The preliminary total dwelling sales figure for WA came in at 6,496 for the three months to March 2017.
Mr Groves said this figure was below the revised December quarter 2016 sales figure, which wasn’t unusual.
“Although preliminary total WA dwelling sales figures are down compared to the December quarter, once all transactions for the March quarter have been recorded, we expect this figure to lift to approximately 8,500, putting this quarter’s activity levels on par with the December 2016 quarterly figures.
“Additionally, early indicators suggest a rebound in house sales in the Perth metro area for the March quarter, with transactions expected to lift to around 6,500. This would put house sales volumes in the Perth metro region for the March quarter up significantly higher than the December quarter 2016 and marginally above the same time last year.
“These stable, moderately improving market conditions provide for equitable buying and selling conditions for both buyers and sellers,” Mr Groves said.
Listings for sale
Listings for sale in Perth increased over the quarter, sitting at 14,845 at the end of March 2017.
“It’s common for listings to rebound in the March quarter following the seasonal dip in listings over the festive period. This quarter’s listings figure is similar to levels experienced in the latter half of last year.
“Stock levels have been well controlled with total listings having declined by 2.7 per cent compared to the March quarter 2016,” Mr Groves said.
Average selling days and discounting
On average, it took vendors 70 days to sell their property in the March quarter.
Mr Groves said the proportion of vendors needing to discount their asking price held steady over the quarter at 55 per cent.
“We’ve also seen an improvement in the amount vendors are having to discount by, with figures revealing the average discount had fallen to 6.4 per cent in the March quarter, from seven per cent in the December quarter 2016,” Mr Groves said.
09 March 2017
The hardest part of buying your first property is saving the deposit.
Prospective homeowners in Queensland have the benefit of more affordable property prices, but it still takes discipline to pull together that all-important down payment.
According to Mortgage Choice’s 2016 First Home Buyer Survey, it takes about two years for two-thirds of Queensland-based first homebuyers to save a big enough property deposit.
“This data is hardly surprising when you consider that property prices continue to surge and wages have all but stagnated over the last couple of years,” Mortgage Choice’s Jessica Darnbrough said.
“Data from the Australian Bureau of Statistics shows the average home loan has climbed 300 per cent over the last 20 years, while wages have only doubled.”
Saving a property deposit has never been easy and requires discipline – usually at a time when young people are finally earning a decent salary and have money to spend.
Qualified Property Investment Adviser Andrew Hancock of MyPropertyPro said many prospective homebuyers struggle to set aside money to save each month because their expenditure exceeds their income.
“You need financial discipline on some level to save money and ultimately you need control over it, but some people struggle to deal with the expenditures and then have money left over to save,” he said.
“I personally advocate reversing the situation and viewing your savings as a bill that needs to be paid, like any bill that you can’t get out of, and put it away first. Then you’ll learn how to live off the rest and the savings plan will just naturally develop.”
With property prices potentially rising faster than a would-be first homebuyer’s ability to save a deposit, Hancock said another strategy may involve paying lenders mortgage insurance – but only after they’ve sought professional advice on their financial situation.
“Sometimes trying to ‘out save the market’ is a bit of a futile experience and it may be better to buy in earlier with a lower deposit, but people do need to understand their own risk profile and personal situation,” he said.
Darnbrough said that while it is becoming harder for many buyers to save a deposit, there are a few tactics they can employ to reach their savings goal faster.
Strategies to increase their savings include shopping around for a better savings deal from their lender, building a budget, asking for discounts, and simply taking their lunch to work, she said.
“This is an oldie, but a goodie. Those who bring their own lunch to work every day, can ultimately save themselves upwards of $50 a week, or $2600 a year – money that can then be put towards a home deposit,” she said.