By Aussie NT Broker
When I first came to Darwin 6 years ago, well over 50% of my business was derived from first home buyers. Banks were lending the full purchase price of homes, and with the Federal Governments first home buyer’s grant, single people were able to purchase their first home with no deposit and were buying great properties in the Northern Suburbs of Darwin, Palmerston and Alice Springs for around $280,000. Their minimum weekly repayment was around $450. So if you had a steady job earning over $50,000, a good credit history and no other debts you were in.
How times have changed.
In 2010, unless you are earning well in excess of $100,000.00 per annum, the single person’s dream of buying your first home in Darwin or Alice Springs is over.
It’s slightly more affordable for young couples, banks like to see that second wage coming in, but it’s extremely hard to obtain finance and afford the mortgage payments once couples decide to start a family.
As if things weren’t already tough enough, the government has reduced the First Home Owner’s Grant, and banks have all but stopped lending in the high loan-to-value ratio market. This means that people that need to borrow up to 95% of the purchase price to get into the housing market have never had it so hard.
The final straw is that the banks have now reintroduced the genuine savings rule. The basic rule states that the bank wants to see evidence through bank statements that the savings have been gradually building over a 6 month period. Obviously you can take longer than 6 months to save but they will want to see evidence of it. Selling a car or getting a gift from Mum and Dad is not what they are looking for.
There are variations on this policy between lenders, so I’d advise that you speak to an MFAA accredited mortgage broker to get an idea of which banks are most likely to help your particular situation. While one bank may say no, another could have a completely different policy.
Genuine savings were required when I first started in this industry. I was always a strong advocate for this as it forced young people to get into the habit of putting money aside each pay, obviously a good trait if you are going to enter into a mortgage. Young people looking to pay $200,000 to $240,000 for their first home were asked to save around $10,000 to $12,000 to show they had the ability to budget. This was on top of the rent of around $200 per week they were already paying. It was tough but it was achievable.
In today’s market, if you would like to buy a modest home in Darwin or Alice Springs you will need to pay as $500,000, your required deposit is at least $25,000, and you could be paying as much as $600 a week in rent. To save that in a year requires you to put aside $500 every week. $1100 each week to put aside before you buy the necessities is a tough ask, I don’t know too many young couples who could do that.
Affordability is a key component in any regions capital growth. And it’s becoming apparent that the lower end of the Northern Territory’s real estate market has cooled slightly over the past 6 months, homes are still selling, but they are having to be listed for longer to achieve the required sale price. With the first home buyer almost non-existent, investors have somewhat filled the void as our rental returns are still very strong. Unless banks decide to relax their policies then I don’t see this trend changing soon.
So, if you are a first home buyer thinking about entering the housing market, you need to form a plan, understand the rules and position yourself accordingly. I keep a database of clients who are saving for a deposit and try to offer as much encouragement as possible. I also try to let them know of any changes in bank policy which may help them achieve their goals sooner than expected. And I always make sure that potential borrowers are aware of how they could be affected if interest rates were higher than the current rate.
Speak to your lender or accredited broker sooner rather than later if you intend on entering the housing market, a half hour chat with the right person should be the first step in achieving your goal of home ownership.