On September 30, the first home owners grant will be reduced – from $14,000 down to $10,500 for established homes, and from $21,000 down to $14,000 for new homes. With the boost to the grant due to expire completely on 31 December 2009, it would seem that the first property party is over. But all is not lost for those not yet in the market.
There are still other state-specific benefits like concessions on stamp duty, and there are strategies other than government grants that can help you reach your goal of property ownership.
Pounce on lower prices
The end of the boost could signal a correction in real estate prices, particularly for properties appealing to first home buyers.
Matthew Bell, economist at Australian Property Monitors, says that in Sydney, “the top postcodes for first home owners [have] had a much stronger rise over the last nine months since the boost was announced.”
Loan values reflect a similar trend. According to the Australian Bureau of Statistics, in the period between March 2008 and January 2009, the average first home buyer loan amount had increased by 16.6 per cent, while for other borrowers it had increased by only 4.6 per cent.
“If I had to pick a sector where there might be some softening [when the boost expires], I would say units,” says Bell.
Save for a bigger deposit
Most lenders will require that you have at least a 10 per cent deposit for your first home. Saving more means that you might have a better chance of loan approval, plus you’re reducing your exposure to increasing interest rates. With a 20 per cent deposit you could avoid paying thousands of dollars on Lenders Mortgage Insurance, which protects the bank – not you, if you default on your loan.
With low interest rates, high rental yields and low vacancy rates, buying an investment property could be a great alternative.
“The right approach [for first home buyers] is to become an investor first and derive the tax benefits of doing so,” says Andy Hall of Residex, who acknowledges that the first home owners grant would not be of assistance in this case.
The latest “Where is it cheaper to buy than rent?” report issued by the Commonwealth Bank found that the number of suburbs around Australia in which it has become cheaper to pay a mortgage than pay rent had increased by 27 per cent from 74 to 94 in the six months to July 2009.
Bell agrees that investment is an attractive option.“There are also still a lot of areas that have some decent prospects for capital gains.”
Research, don’t rush
Take the opportunity to do some proper planning, so that when you’re ready to buy your first place, you can act quickly and with confidence.
- Prepare your budget and set some goals
- Work on your savings history – to boost your deposit, and to show the lenders
- Plan for unexpected costs – such as legal fees and insurances
- Plan for the worst – rate rises, unemployment or illness
- Research property prices, know a good deal when you see one and learn how to negotiate
- Decide on your lender, your loan and get pre-approval.
Government give-aways are great, but with some creative strategies and some careful research, you can still get your foot in the door of your own place.