The Year Of The First Home Buyer

Now is a particularly good time for first home buyers. House prices have slowed, and are in fact declining in many places, there are a wide range of first home buyer incentives at both a national and state level. Interest rates may be high but are expected to come down, potentially as early as February. Investors are pulling back – investor lending fell at the end of the year and in some cities, the number of rental properties is declining as  investors sell off.

While many first home buyers are lucky enough to be able to draw upon the bank of mum and dad, many don’t. So how do you get in if you have a small deposit and a desire to get into the market?

Understand Government incentives

There is a lot available and we have recently mapped out what you can access. They range from low deposit schemes (where you borrow with a low deposit and don’t pay mortgage insurance) to stamp duty exemptions to cash towards buying a new home. All of these schemes have eligibility criteria, some only apply to new homes (to help with housing supply) and there are often price limits for the properties that are purchased.

The range of schemes can be hard to navigate so it is worth speaking to a mortgage specialist to understand what you are eligible for.

Rentvesting

Rentvesting makes sense, particularly if you have a great rental deal, if you need or prefer to be in an expensive city (e.g., Sydney) for work or family reasons, you are able to live for free with parents or family, or because you just want to be there.

While you can’t access first home buyers incentives, you can take advantage of negative gearing which can in many circumstances be far more cost effective than accessing a first home buyer incentive. And in some states, there are some incentives available to buyers regardless of whether they are buying a first home or not.

Buying with another person

Many first home buyer incentives have been adjusted to take into account not everyone wants to buy with a romantic partner but instead with a friend or family member. Financially this makes sense but it is important to set the deal up appropriately to take into account such things as who is going to live in the property, what will happen if someone wants to sell and what to do if someone can no longer pay the mortgage.

Buying smaller or in a less desirable area

Your first home is not your forever home and almost every first home buyer makes some form of compromise. This could include buying a much smaller home, such as an apartment or in a less desirable suburb than the one you really want to be in. The average hold time for a first home is generally well under seven years, by which time most make an upgrade to a better home.

When should you buy? 

The best time to buy is when you are ready and the earlier you buy, the easier it is to build wealth long term and at the very least, have paid off your mortgage by retirement, if not earlier.

Many people try to wait for the ideal time to buy from a market timing perspective. This is extremely difficult and as we have seen in recent years, even people who study the market in detail can get the outlook very wrong. Long term, it generally makes a limited difference anyway given how property markets perform over time.

In terms of ease of purchase however, a slower market is easier to buy in as you can take your time to make decisions. While a slow market is an easier one to buy in, it is interesting that historically, first home buyers tend to be more active in overheating markets, or when first home buyer incentives are particularly generous.