Election 2013 – How does it impact first home buyers?
Election day is almost upon us and the front lines have been quiet when it comes to first home buyers
Few things in the last months have been more important than the issue of who will lead our country after our votes are counted.
But as Kevin Rudd and Tony Abbott trade blows over policies as diverse as paid parental leave, the education of our children and the car industry, it seems talk of the first home buyer and housing affordability is missing from their agendas.
This is despite the fact that according to the latest stats from Auspoll, 84% of Australians think housing affordability is more important than education, border security and the NBN.
It also disregards forecasts from the Australian Property Monitors that the median price for Sydney homes will exceed $700,000 or $500,000 for Sydney units before 2014, .
What this means is that a first home buyer in Sydney will need a $140,000 deposit for a 'home' and a $100,000 deposit for a unit if they don't want to incur Lender's Mortgage Insurance (LMI) and look appealing to lenders.
Recently on ABC Radio National, Professor Bill Randolph, Director of City Futures Research Centre at the University of New South Wales (UNSW) said the issue was being swept under the carpet because of the potential cost.
'I guess the simple answer is that to put your hand up and talk about affordable housing and to get it going again implies you're going to have to spend money and I think that's probably the killer in the discussion to date with our two major political parties,'
Professor Bill Randolph
Outside the Liberal and Labor camps other parties have addressed the policies directly.
One of the Democratic Labour Party's policies is that first home buyers should be able to access 5% of their superannuation when purchasing their first home.
While the Greens haven't given much detail on how they'll help those buying their first home, they have developed a detailed and costed plan to address the shortage of affordable rentals.
So if the government - whoever it is after the election, won't do anything to help you get into your first home a bit easier, here's what you should do to get into your first home.
1. Start a savings plan
No matter how you buy a home in Australia, unless you have a family member putting their home on the line, you'll need at the very least five per cent of the property value and more still for upfront costs such as stamp duty. There is no understating how important savings are in the journey to owning your own home, so you should get it right.
The first choice is whether or not you'll use a First Home Saver Account (FHSA) or high interest savings account.
An FHSA is an account where you earn government contributions of 17% on the first $6,000 you deposit into it. You need to invest at least $1,000 each financial year for four financial years, which means if you time it properly you could get your money in as little as two years.
If you choose to go down the non-government route you'll need to work out if you want to invest your money in a high interest savings account or term deposit. If you find it hard to save you may want to set up a regular savings plan so your money automatically goes into your account each month. This way you won't miss it and won't be tempted to get access to it.
2. Start researching the market
If it's going to take you awhile to save enough to get into your first home, you might as well think about where you want to live. Wherever you're think of buying, it's helpful to do some research beforehand. Get a free RP Data report about the suburb you're interested in buying, including average household income and ages and median prices for houses and units.
It's also a good idea to look at the walk score for any streets you're interested in buying in. This will tell you how close your potential first home could be to shops, parks, restaurants, schools and more and will go someway to helping you find out what it'll be like to live there.
3. Find out if you're eligible for any grants or concessions
There are still grants available for first home buyers and concessions for stamp duty, although these are now skewed in favour of new or substantially renovated properties. To find out what's available to you check out our guide for the First Home Owner Grant (FHOG).
4. Consider another strategy
As property prices continue to grow, many first home buyers are being priced out of the market. But many are coming up with a solution by purchasing an investment property first with only a five percent deposit and thus, incurring LMI and then renting the property out.
But while someone is paying off your mortgage for you, there are a number of things you have to consider before taking on this strategy. Buying an investment property first will only start giving you returns after six to seven years and the cost of research and professional advice you need could outweigh the benefits that you won't be receiving until then. If you are thinking about getting into property, the trick is to not look at any physical property at all. Start with what you want out of the investment and work out what you can afford.
5. Compare home loans so you get the best deal
Even if you've successfully saved up a deposit, used the FHSA or FHOG to your benefit, or decided to pursue an investment property first - your home loan needs to match your financial and personal situation. Choosing the right home loan can be the difference between saving thousands of dollars, to saving tens of thousands of dollars.
If you want the stability of fixed repayments as you settle into your home loan, then you may want to consider a fixed home loan. Otherwise, if you're prepared for your repayments to change from time to time at the beginning of your home loan then you may want to consider a variable rate home loan. Variable rate home loans also tend to have more money saving features such as an offset account, but if you're not much of saver then this feature may not be helpful.