The housing price bubble seen around the country in recent years may lead many of the younger generations to feel like they will never be able to crack the market and own a place of their own. They may even come to you as a parent or grandparent to share their concerns.
If they do, it’s good to be equipped with some sound advice that may dispel some of the unhelpful myths that have recently developed about home ownership, so here are some top tips for you to pass on.
Myth #1: You need a huge deposit
A lot of misinformation has come into first home buyer conversation regarding the need for unrealistically high deposit requirements. Figures of around a 20 per cent get bandied about and as we all know, in the prime city markets this could equate to well over $100,000 – a figure that may take an eternity to save.
John Flavell, CEO Mortgage Choice, offered his thoughts on the deposit issue. “As a general rule of thumb, it is a good idea for first home buyers to save a deposit in excess of 10 per cent of a property’s purchase price. While not all lenders require first home buyers to have a 10 per cent deposit, they do like to see evidence of genuine savings. The more a first home buyer saves, the less their mortgage is and the lower their monthly repayments will be.”
Myth #2: There is no support for first home buyers
Many first home buyers may feel like the world is against them. While there is no doubt that it is difficult to get started, there is support to be found, as Flavell explains. “Thankfully, in recent months, we have seen a number of state governments introduce a range of first home buyer incentives,” he said.
The recent NSW State Budget has just announced that grants of $10,000 will be available for first-home buyers who are building a house, provided the total value of the house and land does not exceed $750,000. And NSW is not alone in offering support, Flavell says.
“In both New South Wales and Victoria for example, stamp duty has been abolished for some first home buyers. Given how much of a financial impost stamp duty can be, this should be considered a very positive move by the states.”
Myth #3: Singles have no chance to get off the ground
Many younger folk choose to marry later in life these days, but this doesn’t mean they are disqualified from obtaining mortgage finance while single. Of course having a dual income is an advantage, but there is nothing to stop singles from applying for finance.
The same can be said about those who work for themselves or own a business. Lenders are willing to consider them seriously, as long they have at least a two year financial track record.
Even a bad credit history doesn’t mean a person is black listed forever. Flavell offers some welcome encouragement on this front.
“While a bad credit history could stop a first home buyer from securing the best possible home loan rate, it won’t necessarily stop them from obtaining finance altogether. The key is to be diligent with your finances, such as paying credit cards off in a timely manner and making sure you pay bills (phone, car etc) on time.”
Myth #4: I’m simply priced out of the market
Says who? Your children or grandchildren may be priced out of their dream location, but what about widening the scope of their search to cheaper areas to get a foothold in the market? They may need to lower expectations and bite the bullet for a while, but once they are in the market they are in a much better position to work their way up toward their ideal goal in the suburb or town of their choice.
Myth #5: Banks reward loyalty
In days gone by the bank manager knew everyone in their district and a relationship with a bank manager may have been an advantage, but today it’s a different game. Remaining loyal to one bank for all banking needs doesn’t necessarily glean any particular favouritism in obtaining finance.
Flavell confirmed this reality when he said that, “it is so important for all home buyers, not just first home buyers, to shop around for a lender and product that suits their needs and not just head straight to their current lending institution”.
Myth #6: I can’t buy an investment property before a home
Ever heard of rentvesting? It’s a novel approach your kids can use to get around the problem of not being able to buy a home in their desired location.
Rentvesting basically means buying a more affordable home in a cheaper area and renting it out as an investment property, while renting a place to live in a more appealing district. This method gets them into the market and gets a tenant to help fund the mortgage cost, while they continue to live in their preferred area.
Flavell supports the rentvesting option, as long as it is done diligently. “If a first home buyer is serious about rentvesting, they need to make sure they do their research and understand what the property market is doing in the area they wish to buy. They should ask themselves: does the market offer strong rental yields? Is the area favoured by renters? Has the area achieved good capital growth in the past?”
Of course, parental help may come into calculations too and many parents who have the room to spare will offer to let the kids move in for a year or two while they rentvest in order to make it an even more viable option.
Do you have any other property buying myths to debunk? Share your ideas below.