First home buyers hit with tougher hurdle but repayments have a silver lining!

Despite lower interest rates, some first home buyers are facing tougher hurdles to enter the property market, particularly to purchase a house, according to Australia’s leading financial comparison website RateCity.com.au.

First home buyers will need to save an extra $1,430 for a 10 percent deposit of a national median-priced house ($544,071) and an extra $810 more for a unit ($413,179), compared to 12 months ago.

RateCity based the findings on the latest Housing Market Report by Australian Property Monitors (APM) released this month (April 3, 2013), which shows the yearly change for the national median house price for the three months to January rose by 2.7 percent. The national median unit price increased by 2 percent compared to the same period last year.

National median
price

Yearly change

10% deposit

Increase in cost for a 10%
deposit

House

$544,071

2.70%

$54,407

$1,430

Unit

$413,179

2%

$41,318

$810

Source: APM, RateCity.com.au

Across the country, Perth saw the biggest rise to its median house price compared to 12 months ago, of 5.7 percent to $558,416. This means Perth prospective home buyers will need an extra $3,011 to meet a 10 percent deposit of $55,842, according to RateCity.

The APM report shows the biggest median unit price rise was in Sydney, with 5.3 percent. Sydney also has the highest median unit price of $474,068. Compared to 12 months ago, RateCity found first home buyers would need an extra $2,386 for a 10 percent deposit.

Alex Parsons, RateCity’s CEO, said it’s not all bad news for first home buyers, who can afford the higher costs of a deposit.

“What many prospective borrowers may not realise is that when property prices rise, it doesn’t just affect your borrowing budget but also your deposit. That’s because a deposit is generally a percentage of the property value.

“But if you can afford the higher costs of the current property market, or you’re lucky enough to be buying in an area that has been stable or reduced in price, you’re in a better position to maintain a mortgage compared to last year.”

According to RateCity’s database of more than 100 lenders, the current average standard variable rate is 5.96 percent, which is 0.87 percentage points lower than in January 2012 (6.83 percent). For the national median house price of $544,071 (excluding a 10 percent deposit), mortgage repayments have fallen by $195 per month.

Canberra was the only state to see a reduction in median house prices, by 0.50 percentage points. Most states also saw median unit prices fall, with only Sydney and Perth increasing in value. This means some states have seen a double advantage of lower property prices and interest rates.

“Whether you’re planning to buy in an area that has reduced or increased in price, the cost of a home will likely be the biggest financial commitment you will ever make. For instance, the national median house price is above half a million dollars and the median unit price is not far behind at over $400,000.

“So first home buyers need to make sure they keep up to date with the latest information on property guides, make sure they re-adjust their budgets if expectations change or look for cheaper alternatives.

“Borrowers should also aim to save at least 20 percent of the value of the property to avoid lenders mortgage insurance. The worst thing a borrower can do is rush into a home loan without an adequate deposit. It will end up costing more and can also come with higher risk. So don’t be afraid to spend some time saving for a decent deposit.

“A good tool is an online savings account, which can be linked to your transaction account and your savings are automatically debited each month. Returns can vary significantly – from almost nothing up to more than 5 percent – so borrowers should make sure you use RateCity.com.au to find a good value deal,” said Mr Parsons.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'First home buyers hit with tougher hurdle but repayments have a silver lining!' have 1 comment

  1. May 11, 2013 @ 7:41 pm Marc A. Donald

    Thank you Micheal for this article, I would like to add a small tip while buying a home which is asking about future plans. Do research about the area that you’ll buy your property in or ask your agent because real-estate agents are aware of any future plans that will happen in any area they’re selling property in because they use it as an advantage for the villa or apartment to increase its price. Future plans may be a hospital, bus station, or even a supermarket that is planning to open.

    Reply


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