Simple tips give first home buyers head start into property market

Latest statistics show it’s getting tougher for first home buyers to enter the property market in Australia, but a few simple tips can give you a head start, according to Heritage CEO Mr John Minz.

Australia Bureau of Statistics (ABS) figures released this month reveal that first home buyers now account for just one in eight owner-occupied mortgages. According to the ABS, the number of first home buyers dropped to 12.5 per cent of the market in September, the lowest figure in 22 years.

Mr Minz said there were a number of reasons for that.

“After being flat for some time, the housing market has picked up, and first home buyers have been forced to compete in a tough market swamped by experienced investors and upgraders with significant equity,” he said.

“There have also been changes to the first home buyer grants being offered by state governments around the country. For instance in Queensland, the $15,000 Great Start Grant now applies only if you are buying or building a brand new home or unit, not an existing home.”

However, data from consultancy Digital Finance Analytics has found that many banks are now willing to lend more of the purchase price than they were a few years ago. The average loan-to-value ratios for new home loans issued to first-home buyers has been steadily rising to 80.8 per cent in the September quarter up from 74.8 per cent a year earlier.

So how can first home owners break into the market? Heritage Bank offered some tips to help first home buyers get the ball rolling:

1. Work out your budget carefully. Use online calculators such as those at heritage.com.au to see how much you can spend on a deposit, what you need to save and how much the repayments will be.

2. Do your research. The property market is always changing so keep an eye on property prices in the areas you want to buy, go to auctions or read property prices in the newspaper.

3. Save as much as you can for a deposit. The larger the deposit, the smaller the loan amount that you need to borrow. As the payments will be less; the interest to be paid will be less. Financial institutions such as Heritage Bank are able to lend up to 95% of the purchase price of those properties. Having said that, lender’s mortgage insurance (LMI) substantially increases if you have a higher loan-to-value ratio. To increase your chance of a home loan approval and decrease your LMI you generally need enough deposit for 20% equity and extra costs like conveyancing and stamp duty.

4. Obtain a copy of your credit file. Most lenders use credit ratings agencies which report on all of your current and past credit activity - good and bad. By checking your file you can keep a track of what information is stored and if the details are correct. You can order a copy of your credit file at through credit bureaus such as Veda or Dun & Bradstreet.

5. Keep your bank account in order. Lenders generally check account statements for the last three to six months when assessing loan applications so keep track of bills and payments to make sure there are no late payments, over-limits or overdraws.

6. Maintain consistent savings habits. A solid track record of employment and a history of regular savings in your bank account will make it easier for you to get a home loan. Use a separate savings account with a higher interest rate to make regular deposits and few withdraws. Lenders want to see evidence of good financial management to ensure they aren’t taking unnecessary risks. If you’re planning to apply for a 95% loan, it’s important that you put forward an excellent application and demonstrate financial reliability to increase chances of approval.

“Owning a home is a big commitment but one well worth it,” Mr Minz said.

“With most mortgages taking at least 25 years to pay off, it makes sense to take your time and make sure your preparation is right before you apply.

“However owning your own home is a fantastic way to build your asset base and create a more secure financial future.”

* Based on a $150,000 loan over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.