First home buyers demonstrate home loan illiteracy
Nearly 9 out of 10 first home buyers don't understand LMI, while almost two-thirds don't know what an offset account is.
New research from ME shows that first home buyers are woefully uninformed about basic home loan terms. While nearly 70% said they feel confident about making financial decisions and around 50% said they understand the property buying process and related costs, the vast majority don't understand some of the most common terms associated with home loans.
The research found that 88% of first home buyers don't understand that lenders mortgage insurance (LMI) protects the lender rather than the borrower. 85% weren't aware that there was no cooling off period when buying a home at auction, while 78% didn't realise they would need to pay their deposit on auction day.
"It’s difficult enough for those trying to get their foot in the door to save up a deposit and decide where to buy. A lack of necessary property buying knowledge is sure to increase the risk of young Aussies being caught out with unexpected costs, adding to the existing stress," ME head of home loan Patrick Nolan said.
"Financial literacy is a valuable asset and one of the biggest money savers over time, especially when it comes to buying what is likely to be the biggest investment of your life," Nolan said.
"Some Aussies fail to educate themselves because they find finances dull and complex and think they know best, while others find working with numbers difficult and put their head in the sand, but like it or not, financial decisions including buying a property is best made on facts – a hunch or a guess could lose you thousands."
- Not now: Just 35% think it’s a good time to buy property
- The key to investing in property during lockdown
- Home stretch: 1 in 3 Aussies would move if they could work from anywhere
- How much less can you borrow under new APRA home loan rules?
- RBA Survey: Half of experts say Big Four will raise rates out of cycle, cash rate holds