Silver Lining for First Home Buyers Amidst the Pandemic

2020 has been a year cloaked in an unscrupulous veil of uncertainty and fear. As Australians, we’ve endured horrific bushfires and the COVID-19 pandemic. It’s only fair to assume that one of the major markers of economic stability, the property market, would also take a substantial hit. However, whilst property prices and sales volumes have dropped, the market has proved itself to be extraordinarily resilient. 

According to data from Core Logic, the number of auctions scheduled in the week ending June 14 was roughly double the weekly average recorded in May which is a great incentive for those looking to enter the property market where values are not at the top of the market. With the first home buyer’s incentive and interest rates at an all-time low, first home buyers are at a strategic advantage to purchase their first property.

First Home Buyers Scheme

The government is set to release another 10,000 scheme places for the next financial year from the 1st of July 2020. Generally, first home buyers need a 20% deposit to pay the lenders mortgage insurance (LMI). Under this initiative, eligible applicants will only require a deposit of as little as 5% from participating lenders, with the bank guaranteeing up to 15% of the property’s value and waiving the LMI. 

Participating Lenders

Two of the big four banks, Commonwealth Bank and NAB are participants in the scheme, with 5000 spots allocated to the First Home Loan Deposit Scheme (FHLDS). A number of smaller banks are also involved in the initiative, including: Auswide, Bendigo Bank, Beyond Bank, CUA and Teachers Mutual Bank. 

Your lender will assess your eligibility according to your personal circumstances. These checks will include:

1. An income test;
2. A priority property ownership test;
3. A minimum age test;
4. A deposit requirement;
5. A new owner-occupier requirement. 

Getting your finances in order

Whilst many millennials dream of purchasing their first home, sometimes the smashed avocado toast is just too good to pass up. According to Digital Finance Analytics, over half of young families are experiencing mortgage stress, and these statistics were taken pre-COVID-19. 

It’s important that during these times that applicants become savvy savers and get their finances in order before proceeding with an application. This includes:

1. Deposits saved and available;
2. Savings of an extra 5% to allow for moving expenses, stamp duty etc;
3. Emergency savings (at least 3 months worth);
4. Homebuilding insurance;
5. Affording repayments if interest rates increase, particularly now that they are at an all-time low. 

Responsible Lending 

Following the Royal Commission, ASIC's new guidance on responsible lending creates a very specific set of criteria that lenders need to ascertain. 

If you’re an avid consumer of Netflix, Stan, UberEats and Deliveroo your bank has the right to request a cancellation letter if you’re willing to give these up to cover your loan.

They may also ask if you’re willing to move your children from private to public school. Yes, this is not a joke. 

This means that it’s imperative to have your finances in order at least 12 months prior to lodging an application to avoid these issues. Whether it’s giving up Netflix or laying off the UberEats, these are new sacrifices you’ll have to make if entering the property market is your ultimate goal. 

Savvy Team

Determining where to purchase your first property is one of the most important and emotional financial decisions that you’ll make in your life. Equipping yourself with a team of experts that can help alleviate the stress and emotion that comes with such an important investment. 

An experienced buyer’s agent can provide unparalleled benefits to their client by maximising profit and yield on the purchase of your first property. For those who are time poor, a buyer’s agent has a wealth of knowledge and experience in researching properties to mitigate risk and maximise long-term profit, all while meeting your ideal property preferences and goals. 

The advice provided by a buyer’s agent allows you to avoid mistakes and disappointment. A good buyer’s agent will help in developing a clear and concise strategy backed by extensive research to purchase below fair market value. 

It’s important that prospective purchasers consider:

1. Avoiding purchasing at the top end of the market;
2. Avoiding purchasing B or C grade assets;
3. Avoiding overpayment;
4. Avoiding purchasing in a low population area or a town relying solely on one industry sector. 

Hence, contrary to other industries and economic sectors, there is certainly a silver lining for first home buyers looking to enter the property market in 2020.