How These First-Home Buyers Pulled Off A Purchase In A Hot Market

“We went to a couple of auctions, and they were terrifying,” first-home buyer Nathan Mahar says. “It was deflating just how many other people there were at the auctions, and then by how much higher the prices went than we were expecting.

“Very soon, we realised we’d have to compromise in order to buy a property.

“Instead of planning to find a three-bedroom house, we scaled down to two, and originally we were looking at paying between $700,000 and $800,000, but ended up going over that.”

For first-home buyers today, with sharply increasing property prices in many areas, limited affordable stock and record competition, there’s not too much room – or cash – left for daydreams.

If they want to get into the market and act as soon as possible, they need to do so with all their available funds in hand, hopefully augmented by the so-called “Bank of Mum and Dad”.

When field service engineer Mahar, 27, and his merchandise planner partner Abbey Chapman-Mills, 28, finally found a great house on a dual 300-square-metre block in Highett in Melbourne’s south-east, they didn’t hesitate to make the owner an offer in the hope of avoiding an auction. And, happily, she agreed.

“We gave a great sigh of relief,” Chapman-Mills says of the house they’re moving into later in May.

“We had such a mix of emotions. There seemed to be so many first-home buyers in our age bracket who worked throughout the pandemic and seemed to have money to spend; the competition was daunting.”

The range of government incentives to help first-home buyers – including the First Home Owner Grant, the first-home buyer duty exemption, reduction or concession, and off-the-plan concession – coupled with historically low interest rates, has dramatically increased the number of people trying to break into the market. As investors start to re-enter the market at that lower end, prices are spiralling upwards.

AMP Capital chief economist Shane Oliver confesses to feeling sorry for them. “They’re often getting stumped by the sheer level of demand,” he says. “We’re now seeing the level of finance going to investors creeping up to that for first-home buyers, so it’s getting even tougher now.

“The property market has taken off so fast; there are only some areas where it’s quite calm – like in Docklands and those suburbs that haven’t quite caught up after the lockdowns. Some first-home buyers may have to borrow more, and there will be a time when interest rates rise again.”

There may be many first-home buyers now forced into “the barbell strategy”, he says – looking for cheaper homes on the edge of the city or in regional centres where they may be able to work from home.

Many are indeed going that way. Comparison site Finder surveyed 1028 first-home buyers for its First Home Buyers Report 2021 and found 17 per cent in Victoria were prepared to buy in another state to gain a foothold on the housing ladder.

Finder home loans expert Sarah Megginson says buyers shouldn’t succumb to FOMO and act in haste and repent at leisure.

“Focus on your own timeline,” she says. “Think about things you can do to cut costs and speed up your deposit savings, and consider going into a joint venture with your parents or siblings. But if you’re still keen to buy sooner rather than later, purchasing interstate could be for you.”

Mortgage Choice broker Tim Leonard says it’s extremely tough for first-timers like Nathan and Abbey, with fierce competition for limited stock pushing up prices and resulting in auction reserves being consistently smashed.

“At the moment, I think they’re all having to lower their expectations a little bit and look at properties under their budget in anticipation of them going for higher prices than anticipated,” Leonard says. “They also have to look in areas that may not be their favourite, perhaps further out than they wanted, or go for a unit rather than a house.

“They can’t even fight too hard on price as the agent will simply move on to the next buyer instead who’s willing to pay the price. But if they find a property that suits, I’d advise them to stop mucking around and not worry about the extra $5000 or $10,000 they’re being asked to pay.”

Train driver Nahrin Butrus, 33, managed to avoid both the hard-nosed negotiation and an auction by deciding to buy an apartment off the plan. She hadn’t really intended to, but, when she couldn’t find anything she liked within her price range in either Melbourne’s north or west – the two areas she was most familiar with – she looked in the east and fell in love with new apartment development Hawthorn Park in Hawthorn East.

“I’d been living at home as when I was younger, I was always more focused on travelling,” Butrus says. “But I got to the point where I wanted to carve my own path in life and have my own place. I looked around for about a year casually, then seriously for another three months, and then I found the apartment off-the-plan that I liked.

“The complex has a lot of greenery, and it’s not too big or too high. I did a lot of research on the developer to make sure there’d be no nasty surprises, and followed my checklist, and ended up buying a one-bedroom apartment with a flexi-room for $540,000. I’m very happy. It’s turned out perfectly.”

Nahrin was wise to stay within her budget, but the danger for many first-home buyers is that they can easily be tempted to splurge too much. Andrew Cocks, the managing director of Richardson & Wrench, says they must make sure that their mortgage is a debt they can afford to service.

“The real issue is making sure that first-home buyers don’t go beyond their means,” he says. “While interest rates are low and are flagged to continue that way, you should only spend what you know you’ll be able to afford. If you remember that, you won’t get into trouble.”

At the moment, for those not buying off the plan, it can be heartbreaking to miss out at auctions so often when determined bidders raise the price far beyond the guide or when private treaty vendors have high expectations. The only solution, says Adrian Kelly, national president of the Real Estate Institute of Australia, is to go along to as many auctions and properties as you possibly can to get a real grip on accurate prices.

“Then if you’re getting priced out of a particular suburb, don’t be afraid to look further afield,” he says. “A suburb nearby that might not be in as much demand now will probably be in demand later. Look at Brunswick. It didn’t use to be the top of anyone’s list, and now everyone loves it.”

Also, try to find homes for sale under their market value – and they do exist – insists buyers’ agent and property strategist Lloyd Edge, director of Aus Property Professionals.

In this instance, that may be distressed-sale vendors who can no longer afford the mortgage or a developer who needs to sell to pay debts.

“So, if you have patience and are able to negotiate on some of the purchase terms, then you may find yourself getting a really good property that you secure below the market value,” he says.

But with prices rising, the supply of stock dwindling and so many first-home buyers out looking too, it’s easy to panic. The most important thing is to make sure you don’t get caught in the FOMO trap, says buyers’ agent, Michelle May, and spend years regretting buying the wrong property.

“People are so desperate to get into a property that they’re ignoring all of their ‘must haves’ and bidding on places they’d ordinarily dismiss,” she says. “But don’t lose sight of what matters to you in a home. Make sure you take a breath and see the property at least twice before making a decision, so the rose-coloured glasses come off.”

That’s advice Abbey Chapman-Mills agrees with wholeheartedly. Now excitedly anticipating moving into her new home, she says it was worth all the work, worry and heartache.

“You’ll nearly always have to compromise on something, but make sure it’s a compromise you’re happy to make,” Abbey says. “Then, if you find something you really love, move really quickly to make it yours. Make an offer – you’ll never know whether the owner will accept it until you do.”

If you don’t get lucky, “then there’s always something else that’ll come along. Always.”