How first home buyers are rushing to take advantage of Australia’s falling house prices

Posted: 9 July 2018 1:13 pm

Young couple in their new house.

It's a buyer's market in many cities. Here's how you can take advantage of falling prices and protect against rate rises.

Months of property data confirms that prices really are dropping from their historic highs, especially in Sydney and Melbourne. In the words of Corelogic's Tim Lawless "We’re already in a buyer’s market in both of these cities".

If you're a struggling first home buyer this is very good news. And here's how you can take full advantage of it.

Consider low deposit loans and guarantor options

If you're keen to jump into the market as soon as possible a low deposit mortgage allows you to get finance with just a 5% deposit. You'll just have to pay lender's mortgage insurance on top.

Even better, getting a parent with equity in their property to go guarantor could allow you to get a loan with a 5% deposit and avoid mortgage insurance. This obviously isn't an option for everyone, but it can be a great strategy for the right buyers.

Get creative with your deposit saving

Getting your foot in the door as a first home buyer means saving at least a 5% deposit. And there are more ways to do this than you probably think:

  • First home owners grant. If you're eligible for the FHOG in your state you can use this to form part of your deposit.
  • Cash gift or inheritance. A gift (not a loan) or inheritance can form part or all of your deposit. The only catch is that most lenders require at least 5% of the deposit to be your own genuine savings. But if the gift makes up between 10% or 20% of the deposit this might not be a problem.
  • Sell some shares. You can sell shares and use the cash for a deposit. If you've had the shares for over six months it's usually considered genuine savings.

Do your research

Now more than ever, hopeful buyers need to research price trends for the properties and suburbs they wish to buy in. Falling prices are good news, but these drops aren't evenly distributed across all property types and areas.

Make sure you don't pay too much for a property in a falling market. And be sure you can handle paying off a property that may not rise in value in the short term.

In other words, don't count on quick capital gains. A strategy that has worked well for property investors in a rising market won't work in a falling one.

But if your goal is to own a home then short term falls in value aren't the end of the world. Just know that a falling property value limits the amount of equity you can build and gives you fewer options if you want to upgrade or refinance.

But what if interest rates rise?

To protect yourself against rate rises you should take the following steps:

  • Compare loans and get the lowest rate possible. Limit your repayments by finding a mortgage with a low rate. It's as easy as looking at the products in the table above and sorting by interest rate.
  • Calculate how rate rises will affect your repayments. You must assume that interest rates will rise at some point. Use our loan repayment calculator and see how higher rates affect your repayment costs. Can you handle an extra $100 a month? An extra $400?
  • Consider fixing your interest rate. Fixing your rate means it will be a little higher than the lowest variable rates on the market, but you'll know exactly how much you're paying for the fixed period.
  • Watch your rate and refinance when it rises. The biggest mistake Aussies home buyers make is failing to switch to a cheaper loan when their rate rises. It's a competitive market, and there's often a cheaper product out there. Switching your mortgage is easier than you think and can save you thousands.

The property market always offers opportunities and challenges for every type of buyer. The important thing is to arm yourself with the necessary knowledge through research and comparison.

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