Build buffer against rise

BUYERS must plan for rate pain, writes Sophie Elsworth

FIRST-HOME buyers are taking advantage of lower property prices and falling interest rates, but are being warned to plan carefully before entering the market.

Recent rate cuts totalling 0.75 percentage points have helped lure first-time buyers, but experts say they should be aware that rates will rise again.

Latest figures from RateCity and the Australian Bureau of Statistics show first-home buyer numbers climbed in all states and territories in May.

In Queensland, first-home buyer numbers increased by 15.2 per cent to 1886.

RateCity spokeswoman Michelle Hutchison says buyers entering the market for the first time need to be careful.

"First-home buyers who are thinking of entering the market this year should include a 2 per cent buffer in their budget to ensure they can afford anincrease in interest rates,'' she says.

"Two per cent is an extra $400 per month.''

Despite experts predicting further rate cuts this year, during the period of a mortgage, rates will also rise.
Repayments for a 30-year $300,000 mortgage at 6.5 per cent are $1896 a month.

If rates on the same mortgage rise to 7.5 per cent repayments would increase by $200 a month.

Suncorp's regional general manager Darrin Hanigan says it is possible rates will eventually rise by several per cent, making repayments higher.

He says the key for first-home buyers is to have a "good budget'' and to factor in all of the costs that come after buying a property.

"They'll be costs they're not used to like insurances, repairs and maintenance on their house, rates,'' Mr Hanigan says.

"A good budget as well as trying to build that equity position is probably the most crucial thing they can do.''

Mr Hanigan says borrowers should try to slash their mortgage as quickly as possible.

"Have some certainty around your financial income and really set yourself up in the long run,'' he says.

"What you do in the early stages pays dividends at the back end.''

1300HomeLoan managing director John Kolenda says buyers entering the market for the first time need to make sure they understand what they are borrowing and what rates are attached to their loan.

"The should be mindful if the rates go up and how will it impact them,'' he says.

"What if interest rates in two years time go up by 1 to 1.5 per cent, what does that mean for monthly repayments?''

Mr Kolenda says most mortgage brokers put in a "buffer'' for borrowers so if rates rise they can afford their repayments.