First-home buyers: Common knowledge gaps including hidden buying costs
First-home buyer activity is surging — get your knowledge on the costs and process up to scratch.
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Young Aussies are keener than ever to snap up their first home — but experts say many have major knowledge gaps when it comes to the buying process.
Buyer’s advocates are reporting a particular lack of awareness around the extra costs associated with purchasing property and obtaining a loan.
A national Westpac survey of parents with children aged 18-29 also found 51 per cent said the COVID-19 period had made them realise their kids were not as financially savvy as they could be.
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But the research also reflected a desire to fill any knowledge gaps, with the pandemic spurring a 68 per cent increase in young Australians talking to their folks about money. It had also motivated 42 per cent of them to save for their first home.
Westpac managing director of mortgages Anthony Hughes said the bank had seen an increase in first-home buyer activity over the past year, as the pandemic prompted people to “engage with their finances on a deeper level” and “take advantage of record-low interest rates”.
This optimism had carried into the new year, with home ownership continuing “to be a high priority for young Australians (seeking) a greater sense of financial security and stability”.
Buyer’s advocate and My Millennial Property podcast co-host Emily Wallace said the low interest rate environment and government schemes, like stamp duty reductions and the HomeBuilder grant, were motivating her young clients to take the property plunge.
But she also reported “a lack of financial literacy” and knowledge gaps ranging from “what does a mortgage look like, to what costs are associated with buying, to what’s a normal council rate?”
Advantage Property Consulting director Frank Valentic said extra purchasing costs coming as a shock to many first-timers included conveyancing fees (typically about $1500), building and pest inspections ($500-$800), and lender’s mortgage insurance (LMI) for those with deposits less than 20 per cent ($10,000-$20,000).
Body corporate costs stung many naive first-timers too, as did “making the mistake of going for a cheap honeymoon interest rate that after a year, converts to a much higher rate”. He recommended getting loan pre-approval in writing before committing to a purchase.
Mr Valentic said others weren’t aware of the significant stamp duty savings on offer for Victorian first-home buyers, with the tax waived for those who spent less than $600,000 and discounts applying for purchases up to $750,000.
Victorians who spend up to $1m will also get hefty stamp duty discounts up until July 1, with 50 per cent slashed for those purchasing new builds and 25 per cent for established properties.
In New South Wales, first-home buyers who purchase new properties for less than $800,000 are exempt from paying the tax, while those with properties below $1m qualify for varying discounts.
The exemption was previously available for new purchases of less than $650,000 but was boosted last year in a temporary scheme that will last until August.
Stamp duty exemptions for first-home buyers aren’t available in South Australia.
Finder home loans expert Sarah Megginson said before shopping for homes, budding buyers should document their regular expenses to make sure they could afford the “long-term commitment” of a home loan.
“It’s so much more than swapping rent for a mortgage,” she said.
“You’ll also have to pay council rates, and strata fees if you buy an apartment. All the property expenses become yours — you can’t just ring your landlord and say, ‘can you send over a plumber?’”
Those who could present a 20 per cent deposit should, to avoid LMI. But Ms Megginson said if that meant “saving for another six months”, you may be better off lodging 10 per cent.
On top of putting money aside for the extra buying costs, she recommended keeping a savings buffer of “at least a few thousand dollars” to cover any unexpected expenses.
Online calculators could help first-timers figure out their borrowing capacity, but Ms Megginson also suggested engaging experts like an accountant or mortgage broker. The latter could make navigating the loan process — including choosing a major or second-tier lender and a fixed or variable interest rate — much simpler.
“You’re not going to have all the answers, so feel comfortable reaching out to experts as well as doing your own research,” she said.
“The more informed you are, the better buying decisions you can make.”
This first-home buyers special report is published in partnership with Westpac.
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THE COSTS OF BUYING
-Stamp duty: calculated based on the value of your purchase, discounts apply for first-home buyers
-Conveyancer: fees vary, but generally up to about $1500
-Building and pest inspections: generally ranging from $500-$800
-Lender’s mortgage insurance: only applies for those with deposits of less than 20 per cent and varies depending on size of your deposit
-Title insurance: an optional expense that protects against possible risks that can threaten your property ownership or right to occupy
-Body corporate fees: only applies for those who purchase in strata-titled complexes, like unit blocks or apartment buildings
-Council and water rates: vary per council
-Buyer’s advocate: an optional expense that can either be a set fee starting at about $2000 or a percentage of the property purchase that’s typically 1-2.5 per cent, depending on the level of service you want
*Other costs may apply, depending on your situation
GOVERNMENT INCENTIVES
-HomeBuilder grant: federal government incentive for those building a new home or substantially renovating an existing home. Grant is $15,000 for contracts signed between January 1 and March 31, 2021, and was $25,000 for those signed between June 4 and December 31, 2020. Application deadline is April 14. Construction must start within six months of contract being signed. Different price caps apply per state, along with other eligibility criteria. More information: treasury.gov.au/coronavirus/homebuilder
-First Home Loan Deposit Scheme: allows successful applicants to buy a home on a deposit as low as 5 per cent without paying lender’s mortgage insurance, with the government guaranteeing up to 15 per cent of the loan. The federal government has offered 10,000 places for those buying established homes per year, and announced an extra 10,000 places for those building or buying new homes for the 2020-21 financial year. Applicants must choose from 27 participating lenders, eligibility criteria apply. More information: nhfic.gov.au/what-we-do/fhlds/
-Stamp duty discounts and exemptions: vary per state
-First Home Owner Grant: vary per state
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