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TikTok vs talking to your broker? It’s no contest

Chances are, if you’re reading this blog via a social media site, then you’ve also watched a TikTok or Instagram video before, too.

In fact, more than 8.5 million Australians are active on TikTok and almost 14 million on Instagram – making both platforms key players in Australia’s social media landscape.

Social media platforms certainly helped us while away the hours during COVID lockdowns, and they’re still keeping us entertained as we check out what Korean office workers eat for lunch, short clips of our favourite comedians, or discover what a family of 10 has for breakfast.

But while many of the videos seem like harmless fun, there are some pitfalls you might want to avoid in the financial services landscape.

69 million views for #Mortgage

Interestingly, almost one-in-three Australians (30%) say they turn to social media for money guidance.

And Finder research shows people act on what they see, especially younger subscribers.

Almost one-in-two Gen Zs (48%) have taken action on their finances following guidance from a content creator, compared to 17% of Gen X.

That’s no real surprise. After all, the hashtag #TikTokmademebuyit has gained 31.8 billion lifetime views and counting.

What is surprising, is how many Australians head to TikTok or Instagram looking for home loan tips.

For example, #Mortgage content has racked up 69 million views on TikTok alone in the past 12 months.

Knowing who you can trust on TikTok

On one hand, it’s great that social media is breaking down money taboos.

And there’s no doubt that TikTok, Instagram, Facebook and LinkedIn can be handy sources of information for home buyers.

The catch is that almost anyone can post on social media, and when we’re talking about mortgages, which is the largest financial decision most people will ever make, the last thing home buyers need is dodgy advice.

So it pays to check who is behind the video.

Australia is one of the few countries globally where influencers on social media have to be suitably licensed before they can offer advice on financial products.

Mortgage brokers also have to follow strict industry rules when it comes to marketing and advertising. And many brokers are supported by their aggregator’s compliance team who double-check content for accuracy and other legalities.

However, TikTok and Instagram don’t just show videos created by Australians.

The platforms’ algorithms are designed to deliver more of the same sort of content you’ve shown an interest in.

So, it’s likely that if you start watching posts on financial strategies around home loans, debt recycling, debt consolidation or property investment strategies, you could come across content created by people based outside Australia, in countries where the rules are far less rigid, different, or non-existent at all.

The bottom line

No matter whether you’re just starting your home buying journey, or you’re ready for the next step on the property ladder, social media can be an entertaining and accessible source of information.

Just be sure to check that any content you’re viewing on home loans or investment property loans comes from a licensed mortgage broker based in Australia.

Better still, pick up the phone and give us a call.

Sure, we’d (probably) lose in a dance-off against your average TikTok creator.

But we can provide you with home loan information tailored to your situation. And that can give you a lot more value – potentially in a lot less time – than trawling through thousands of #homeloan videos and posts.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Fixed rates tumble: a sign of things to come?

While about 4-in-5 Australian households are currently on a variable-rate mortgage, fixed-rate home loans shouldn’t be overlooked.

Locking into a fixed rate can offer several advantages, including certainty of repayments – which may make budgeting easier – as well as protection from possible rate hikes during the fixed term.

Right now, the direction of fixed rates is attracting plenty of attention.

Many lenders are cutting their fixed rates

A growing number of lenders, including several major banks, are starting to cut fixed rates across all terms, according to Mozo’s latest banking round-up.

Macquarie Bank, Commonwealth Bank, HSBC, Bank of Queensland, Westpac and its stable of brands – St.George, BankSA and Bank of Melbourne – have all recently cut some of their fixed rates.

They were joined by smaller lenders such as Hume Bank, MOVE Bank and Great Southern Bank, which also dialled down their fixed rates.

What’s especially exciting is that a number of these rate cuts were surprisingly large, in some cases worth half a percent or more for 2- to 3-year fixed rate terms.

Why are fixed rates falling?

Home loan interest rates – both variable and fixed – are shaped by a variety of factors.

When it comes to fixed rates, a key driver can be lenders’ forecasts of where they believe interest rates are headed.

In this way, fixed rates can be a bellwether for the direction of future interest rates.

Among the major banks, Commonwealth Bank expects a 0.25% RBA rate cut in late 2024.

ANZ is anticipating the RBA to cut rates from about February next year.

NAB has pencilled in a rate cut by mid-2025, and Westpac is expecting several rate cuts starting in March 2025.

The good news is that none of the big four banks seem to be anticipating rate hikes any time soon, and that’s great for those with a home loan.

What could this mean for you?

The trend to lower fixed rates suggests variable rate cuts may not be too far away either.

Right now though, fixed rates can be lower than variable rates depending on your choice of lender, fixed term and the size of your deposit.

If you’re currently struggling with your home loan repayments, locking in a fixed rate for the next 1, 2 or 3 years might help give you some certainty and home loan repayment relief.

But you’ve got to weigh that up against the potential of any variable rate cuts that you could miss out on in that same time period.

Bear in mind, predictions of rate cuts are exactly that – forecasts, not guarantees of lower rates.

Another option to consider is splitting your home loan between fixed and variable rates, which can allow you to get the best of both worlds: the certainty of a fixed rate plus the savings of a variable rate if interest rates start to head south.

Call us today to understand if fixing or splitting your loan rate could help you save.

The home loan feature 70% of new borrowers are hooked on

Faced with high interest rates and a cost of living crunch, home owners in droves are using home loan offset accounts to their advantage.

One of the nation’s biggest banks, NAB, reports that almost 70% of new home loan customers are opting for an offset account, up from 50% just two years ago. And it can help them save on interest.

How do offset accounts work?

An offset account is typically an everyday account (or multiple accounts) linked to your home loan.

You won’t earn interest on the money stored in the offset account/s. Instead, the balance is deducted from, or ‘offset’ against, the balance of your home loan when loan interest is calculated.

Say for instance you have a home loan of $400,000 and $20,000 in the linked offset account. You’ll only pay interest on $380,000 ($400,000 less $20,000).

This can reduce your monthly interest costs. And as your monthly repayment amount stays the same, more of each regular repayment goes towards paying off the loan balance. That is: more of your repayment amount goes to paying down the principal component of your principal + interest loan.

This in turn further reduces next month’s interest cost, too.

In fact, Macquarie Bank calculates that based on the above scenario with $20,000 in your offset account over the life of a 30-year loan (with an interest rate of 6%), you can save more than $87,000 in interest, and shave more than three years off your loan.

Even better, money in the offset is usually available to withdraw if needed – so the cash can be made available for unexpected bills.

How to use an offset account to your advantage

The bigger the balance of your offset account, the more you’ll likely save on loan interest.

According to NAB, one way to grow the value of your offset account is with a ‘three Cs’ strategy: crediting, consolidating and cutting back where you can.

Asking your employer to ‘credit’ your salary directly into the offset account could help maintain a higher balance.

If you have cash stored in a savings account, you could consider ‘consolidating’ it into your offset account. You may be able to earn interest of up to 5% on a savings account but if your mortgage rate begins with 6%, chances are you’ll save more with an offset account than you’ll earn on a savings account. Plus, interest savings in an offset aren’t taxed.

Meanwhile, ‘cutting’ back household spending where possible can help you boost the balance of your offset account to improve interest savings.

It’s an approach being used to great effect by plenty of home owners. NAB reports a 55% increase in the value of its offset accounts since the pandemic – rising from $29 billion in 2020 to more than $45 billion today.

Is a home loan offset account right for you?

Despite the popularity of offsets, they may not be a suitable choice for everyone.

An offset home loan can sometimes come with a higher rate than a more basic loan, and unless you consistently have a reasonable balance in the linked offset account, you could end up paying more than you save in interest.

Also, the money you store in an offset account could be used elsewhere as an investment – so it’s worth weighing up whether to prioritise reducing your home loan now or investing for the future.

If you’re not sure where to begin, contact us today to find out if a home loan offset could help you get ahead with your mortgage and save on interest.

How much has your home’s value risen by?

Ask any long-term home owner what they originally paid for their property, and chances are they’ll respond with an eye-wateringly low figure.

Plenty of Australians look back on the price they paid for their home and marvel at how low it seems relative to current values – often while breathing a sigh of relief that they bought when they did.

This is not a recent trend.

Property has a strong track record for growth

Fun fact: over the last 100 years, residential property values in Australia have risen by an average of 10.9% annually.

Sure, there can be short term dips and periods when values plateau, but the broader trend has been upwards.

In dollar terms, this price growth can be mind-boggling.

Take Sydney, for instance, where the median house price back in mid-1992 was $221,770. Thirty years later, in 2022, the median value was $1,124,421. Today, it is $1,473,038.

It’s a similar story across all our major cities.

But what if you purchased more recently? What sort of increase in value has your home seen?

How much have home values increased since you purchased?

CoreLogic delved into the history books to see how national property values have risen since the year of purchase, starting with the mid-90s.

Looking at the results below, it’s pretty clear that the longer you’ve owned your home (or investment property), the bigger the potential rise in value.

Buyers who purchased about 30 years ago in 1995 could find their property is now worth more than five times what they originally paid thanks to a 437% increase in value.

If you purchased about 20 years ago back in 2005, your home may have jumped in value by 148% (2.5 times more than you bought it for).

Closer to the present, homes purchased in 2020 may have seen a 34% rise in value.

And even if you purchased your home last year, you may have already notched up capital growth of 4%.

Increase in national home values since year of purchase

1995: 437%
2000: 308%
2005: 148%
2010: 94%
2015: 57%
2020: 34%
2023: 4%

Source: CoreLogic article. Direct link to graph here.

Why a rise in your home’s value matters

A rise in your home’s value is worth much more than bragging rights at your next barbecue.

Increasing property values are a key source of household wealth in Australia.

Better still, a rise in your home’s value can make it easier to refinance to a more competitively-priced home loan, or provide the equity to invest in a rental property or achieve other personal goals such as funding your kids’ education.

Talk to us to start your property journey

The upshot is that when you buy a home – either as a first home buyer or upgrader – it’s worth keeping one eye on the future.

With the passage of time, the price you paid today can start to look like a better deal than it felt at the time, and you could be grateful you purchased when you did.

Call us today to find the home loan that helps you get started on your property journey, or to unlock equity in your current property.

Property market set to blossom this spring

At last! It’s time to pack away the winter woollens, and dust off the t-shirts and shorts.

Spring is just around the corner, and that means sellers will be sprucing up their homes to attract as many buyers as possible.

Spring has always been a popular time for sellers and buyers alike. Gardens look lush, the warmer weather sees us head outdoors, and a home purchase can be settled in time for Christmas.

But there’s another reason why spring 2024 is likely to be especially busy.

20% more homes to choose from

Over the past decade, spring has seen new listings jump by more than 18% across the country, according to CoreLogic.

This gives buyers a wider selection of homes to choose from – and they certainly take advantage of it. Home sales across the country typically rise by more than 8% in spring.

This year, buyers could have an even bigger choice of homes to pick from.

According to CoreLogic, autumn and winter have seen real estate listings flow onto the market at an above average pace.

That’s seeing the market shift towards more of a balance in supply and demand – especially compared to last year, when sellers had the upper hand.

Even so, buyers should prepare for the spring selling season.

Quality homes don’t stay on the market for long. In Perth, for example, the median selling time is just 10 days at the moment, so buyers who act fast can have a competitive advantage.

3 steps to give yourself an edge

In the fast-paced spring market, home buyers could put themselves ahead of the competition by following three simple steps:

1. Establish a wish list

The more properties you inspect, the easier it can be to lose track of what you really want in a new home.

Cut through the confusion by making a list of must-have features. Follow this up with a rundown of features that are nice but not essential.

Having a wish list to work from can be a real time saver as it lets you focus on properties that tick all the boxes for your ideal home.

2. Know what you can afford

There’s no room for guesswork when it comes to buying a home.

Talk to us for a clear idea of your borrowing power. This lets you set a buying budget so you know which homes sit comfortably within your price range.

3. Have your home loan pre-approved

Nothing says you’re a serious buyer like having mortgage pre-approval. It’s a simple step that can eliminate a large part of the stress associated with home buying.

And if you’re buying at auction, pre-approval lets you bid with confidence while setting a clear limit for your highest bid.

We can help you arrange home loan pre-approval for a loan suited to your needs.

We’ll spring into action on your behalf

As the weather starts to heat back up, so too will the housing market. So if you’re looking to buy, now is a good time to get organised so that you’re home loan ready if the opportunity arises.

Call us for a personalised chat about your property goals, and discover how we can help you achieve them with a home loan that suits your needs.

Why multi-bedroom homes could be appealing for investors

Investors have been a driving force in the property market lately, with lending to investors up almost 30% over the year to May 2024.

Part of the appeal has undoubtedly been rising property values, which have jumped 10.14% nationally since the market lows of late 2022, leaving many investors pocketing tidy capital gains.

However, successful investing can also involve buying a property with plenty of tenant appeal, and new research from CoreLogic indicates that renters are opting for homes with more bedrooms.

Why is that the case?

Most people are feeling cost of living pressures right now – and renters are no exception.

Renters aren’t just dealing with higher utility bills and rising costs at the checkout and the bowser – they’ve also had to deal with rents rising 8.2% nationally over the past year.

Thus, plenty of tenants are looking for ways to lower their weekly rent – and one strategy is to lease a larger home, either for use as a sharehouse or to accommodate multiple family members.

According to CoreLogic, the evidence for this strategy lies in data that shows higher rent increases for homes with more bedrooms.

As a guide, rents for 1-bedroom units and studios have increased by 7.1% over the past 12 months. Rents for 2-bedder apartments have risen by 7.9%.

Whereas, rents for houses with five or more bedrooms have jumped 8.7% over the same period.

Despite the higher rent rises, it’s often more cost-effective for renters to band together and share a bigger property.

The average weekly rent per bedroom in a 5-bedroom house is about $175 nationally compared to $293 in a 2-bedroom unit, or $541 in a 1-bedroom apartment.

The takeout for investors

While rents for multi-bedroom homes may have outpaced smaller properties, a larger dwelling won’t appeal to every investor. And it’s not just about the likelihood that a big house will come with a higher price tag than a smaller place.

A large property with the potential to accommodate more tenants can experience greater wear and tear, potentially leaving an investor with higher maintenance costs.

In addition, 4-5-bedroom houses are often found in outer suburban areas, which may experience slower price growth than inner city locations.

Ultimately, what matters is that investors consider what they want to achieve by purchasing a rental property, and invest in the place that aligns with their goals.

Call us today

When looking to buy an investment property, it’s also important to find an investment loan that’s right for your needs.

And that’s where we can play a key role.

Call us today to get to know your borrowing power and explore ways you can finance your investment property.

Low deposit scheme opens up to New Zealander visa holders

Kiwis hoping to buy a first home in Australia have just scored gold! The popular Aussie low-deposit home buying scheme has been opened up to visa holders from across the Tasman. Here’s what you need to know.

Sure, the Kiwis have the All Blacks, the glaciers and landscapes fit for a Hobbit.

But Australia offers New Zealanders something that could deliver more of an adrenaline rush than bungy jumping in Queenstown.

And that’s the chance to buy their first home in Australia with as little as a 5% deposit.

The popular Home Guarantee Scheme (HGS) lets Aussie citizens and permanent residents buy their first home in Australia with just a 5% deposit. There’s a version for regional first-home buyers, too.

Single parents can also use the scheme to buy a home with a 2% deposit.

And Housing Australia has just confirmed to us that New Zealand Special Category Visa (SCV) holders are now considered ‘permanent residents’ for eligibility purposes for the HGS (more on the SCV below).

But first, how does the scheme work?

The HGS helps first home buyers and single parents buy a place of their own even when they have a deposit smaller than the standard 20%.

Essentially, the government acts as a guarantor for the home buyer’s loan, so there is no need to pay lenders mortgage insurance (LMI), which can help you save on upfront costs.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

How many New Zealanders could benefit from this change?

Here’s the good news.

We reached out directly to Housing Australia, which runs the HGS, to confirm that New Zealanders can apply for the low deposit scheme.

It turns out that New Zealanders who hold a Special Category Visa Subclass 444 (SCV) are now regarded as permanent residents for the scheme and are therefore eligible to apply.

Of course, there are other eligibility conditions. These include maximum price caps on the home you can buy, with price caps varying across the country.

The most straightforward way to find out if you might be eligible to take advantage of the HGS is to call us. We can walk you through the scheme, and explain whether or not you are eligible to apply.

Not all lenders have signed up to the HGS

No matter whether you’re a dinky-di Aussie or a Kiwi making a fresh start in Oz, it’s important to know that the HGS is not available through every lender.

We can let you know which banks have signed up to the scheme, and help identify loan options from participating lenders that may suit your needs.

It’s also important to know that places within the scheme are limited, and who knows how long New Zealand SCV holders will be considered ‘permanent residents’ when applying for the scheme, so get in touch with us today to get the ball rolling.

Will home prices keep rising over the next year?

Property prices are expected to keep climbing higher through to mid-2025 – though not everywhere, according to a new report. We reveal where prices are tipped to go up, and where prices are expected to fall.

What a crazy financial year it’s been for property prices.

Despite a cost of living crunch and high interest rates, home values Australia-wide have soared 8.3% over the past 12 months, according to CoreLogic.

Will prices keep heading north? Or can we expect the market to cool at some stage?

These are key questions for home buyers who may be weighing up whether now is the right time to buy.

To get some answers, we turned to Domain’s latest forecast report, which sets out expected property price movements over the next 12 months.

The big picture: prices set to keep rising

According to Domain, several factors are set to push Australian home prices higher over the next year.

On one hand, we’re seeing a tight supply of new homes being built, combined with lower than usual numbers of homes listed for sale.

On the other side of the ledger, strong buyer demand is being fuelled by a growth in migration.

As Domain puts it, the “push-pull between affordability and availability” will be the factor that shapes Australia’s property market between now and June 2025.

Price growth is expected to differ between cities

That’s not to say home prices across Australia will move in the same direction and at the same pace.

Let’s take a quick tour around the nation to see what Domain believes lies in store for home buyers (and apologies to Hobart and Darwin residents – neither city was covered in the released report).

Brisbane

Brisbane’s property market has notched up an impressive 16.3% price growth over the past year. And Domain says there’s more growth to come.

With a forecast for 6-8% price growth, Brisbane’s median house price could hit a record high of up to $998,500 by mid-2025. Apartment values are expected to increase by 4-6%.

Sydney

If Domain’s prediction of 6-8% price growth proves accurate, Sydney’s median house price will hit a new record high of up to $1.76 million by this time next year.

Apartment prices (median) are also expected to reach a new record of up to $855,000 based on forecast price growth of 4-6%.

Melbourne

Melbourne’s housing market is expected to remain a little cooler, with growth between 0-2% expected – leaving median house prices between $1.03 million and $1.05 million. Unit prices are expected to do better, potentially rising by up to 4%.

Regional Victoria is the only market where Domain expects house prices to cool, with falls of 0-3% expected by mid-2025.

Adelaide

Adelaide could be on track to become a million-dollar city if Domain’s forecast of 7-8% price growth pans out. It could see Adelaide’s median house price hit a record high of up to $984,000 by June 2025.

Unit prices are anticipated to grow by up to 6%, helping the city’s median apartment price push through the $500,000 barrier.

Perth

There’s no denying Perth has had a bumper year, with a 22% jump in home prices over the past 12 months. And according to Domain there’s plenty of gas left in the tank.

With price growth of 8-10% possible over the year ahead, Perth could notch up a record-high median house price of between $840,000 and $856,000 by this time next year. In the unit market, prices are expected to jump 4-5%.

Canberra

Canberrans can expect mild house price growth, with values forecast to climb by up to 4%.

Unit prices in the nation’s capital are expected to increase by 1-4%.

What to weigh up

Domain’s forecasts are just that – predictions, not facts.

Along with factors that could push prices higher, the property listing site also cautions that a tighter jobs market and stagnating incomes could put downward pressure on prices.

Long story short: the right time to buy is when you feel ready to get into the market.

We can’t say for sure how property prices will move.

But we can provide clear answers on your borrowing power, help you understand if you’re in a position to land home approval, and help you find a home loan that’s right for your needs.

Rate cuts? Pencil them in for 2025

Put the party pies on ice and postpone those rate-cut celebrations for a while yet. The much-touted rate cuts we’ve been waiting for may not arrive until 2025. Here’s why rates could be staying higher for longer, and how to take action yourself.

June saw the Reserve Bank of Australia (RBA) keep the cash rate on ice – yet again.

Rates haven’t budged since November last year, and with the RBA not due to make another rate call until August, interest rates will remain in a holding pattern for at least two more months.

For home owners struggling to manage their home loan at current interest rates, it begs the question: ‘what happened to all the talk about rate cuts in 2024?’

Here’s what’s happening.

One reason why rates aren’t moving

Just a few months ago, some of our biggest banks were predicting interest rates would start to slide sooner rather than later.

The Commonwealth Bank and Westpac, for instance, expected rate cuts as early as September.

That’s now looking increasingly unlikely.

The reason lies with inflation.

The RBA is intent on getting inflation down to 2-3%.

Unfortunately, inflation is not playing along.

It’s currently sitting at 3.6%. So close, but not quite there.

When are rates likely to fall?

The RBA expects it could be “some time yet” before inflation is happily nestled in that 2-3% range – the point at which long-awaited rate cuts may start to kick in.

It’s not much of a date for home owners to work towards, though the big banks have a few time frames of their own.

Westpac and NAB now both see rates heading south from December. And while CommBank recently stated it expected rates to fall in November, there are signs it’s losing hope for a 2024 rate cut.

“Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November,” CBA’s head of Australian economics, Gareth Aird, said.

“The risk to our call is increasingly moving towards a later day for an easing cycle.”

Meanwhile, ANZ doesn’t expect a rate cut before 2025. Ditto Citi economists and a growing number of other experts.

Long story short, even if we do get a December 2024 RBA rate cut, it’s probably fair to say we won’t see those cuts flow through to home loans until early next year.

And a note of caution: the RBA mentioned in its June statement that it is “not ruling anything in or out”.

It’s a grim reminder that a rate cut is not guaranteed before another rate hike.

This is why it’s so important to take action of your own.

How to manage higher rates

Revisiting your household budget, identifying areas where you can cut back, and tucking spare cash into an offset account to save on loan interest are all steps worth considering.

And don’t forget, tax cuts for 13.6 million Australians kick in from 1 July.

That could provide extra cash each pay day to help pay off your home loan.

It’s also a good idea to speak to us for a home loan review.

We can let you know if you still have the loan that’s right for your needs, or if you could save by switching – without having to wait for RBA rate cuts.

Better still, rising national property values may mean you could be in a great position to refinance.

Talk to us today for more tips on managing your home loan repayments and possibly trimming your loan rate. It may mean the party pies can come out sooner!

Disclaimer:

The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Getting ready to buy your first home

Here are the most important things to know before you borrow.

If you’re looking to buy your first home, chances are you’re also looking for your first home loan. It may seem daunting, but it doesn’t need to be. With some expert advice and help along the way, you’ll be able to find the right loan and, more importantly, get closer to owning your own home. More than half of all Australians taking out a mortgage are doing so with the help of a mortgage broker. It’s the smart way to go. In this blog, we’ll cover everything you need to know about getting your first home loan and how having a broker by your side could benefit you.

Working with a Front Row Financial mortgage broker is the smart way to go

We provide real choice, looking to find you the right deal.
We work with multiple lenders, not just one – keeping competition alive.
We may negotiate a better outcome.
We help at a time and place that suits you, doing the legwork for you.
Our aim is to save you time and stress, and get things moving as quickly as possible.

Start saving for a deposit

Most lenders require a deposit of at least 10-20% of the total loan amount.

Lenders Mortgage Insurance

If your loan amount is more than 80% of the value of your dream property, you will also need to pay Lenders’ Mortgage Insurance (LMI). This is a one-off insurance payment charged by lenders, to borrowers who are considered a higher financial risk. Your risk to lenders is determined by your loan to value ratio (LVR), which is the amount you wish to borrow divided by the lender’s valuation of the property you wish to buy. Lenders generally like to have at least a 20% buffer, so if you have to default on the loan, they stand a good chance of recouping the loan amount through the sale of your property. Ideally, you should start with a 20% deposit to avoid paying LMI. For some borrowers, however, LMI is considered a worthy investment to help secure a loan with a lower deposit.
The critical factor is whether your income can support the higher loan repayments. We can give you an LMI estimate based on your financial situation before deciding how much you need for your deposit.

Saving for a deposit

There is no time like the present to start stashing your cash for a deposit. The longer you put it off, the harder it can be to develop good savings habits. Unless you win the lottery, inherit or receive some other windfall, chances are you will need to make sacrifices to save. This may mean finding cheaper rent or moving back in with parents, while making some tough choices about how you spend your disposable income.

Start with a budget

Make an honest appraisal of all your living expenses and decide where you can cut back. Once you know how much you can actually save, set up a direct deposit from your pay into a separate savings account with no card access. That way you won’t be tempted by ATM withdrawals or EFTPOS purchases. It may not be easy, but it will be satisfying to watch your nest egg grow, knowing your homemade lunches and big nights in will eventually reap financial rewards.

Remember the extra costs

In addition to a deposit, you’ll also need to have enough saved to pay for stamp duty and conveyancing or legal fees associated with the purchase of the property.

Talk through your options with us

When it comes to buying your first home, it’s a good idea to speak to a mortgage broker first – even before you speak with a real estate agent, or get too far down the track.

Not only is a broker a wealth of information and advice, we’ll also help you find the right loan, and aim to make the whole application and approval process much easier. There are literally hundreds and hundreds of different loan products for you to choose from. It’s just a matter of helping you finding the right one. As your broker, we will look for a loan that suits you and your circumstances. With access to multiple lenders and an array of different loan products, we stay up-to-date with changes within the market and new products from the lenders as they come online. The best thing is, while you’re saving for your deposit, we are working for you to give you the peace of mind that you’re in the right deal.

The first thing we will do is catch up and chat about your needs and goals. We can then give you a realistic idea of your borrowing potential and help you find the loan that suits you. So when you find the right place, we can work on sorting out your finance as quickly as possible. Once you know what you can borrow, have found a house, and have chosen a loan, we take care of the application process, taking all the headaches and stress away.

Why not go straight to a bank?

Of course you can go to a bank, but this can be trickier than it sounds. Firstly, which one do you choose? Which of their products is right for you? And what about other lenders, building societies, and credit unions? There are a lot of options out there and, with regularly moving interest rates and new products, it’s an ever-changing market. And let’s not forget that if you’re a first homebuyer, you’re probably very new to this. That’s why a broker makes sense. We do this everyday. We know the lenders, their products and policies and we keep up-to-date with changes. We help choose what’s right for you. Banks enjoy working with brokers, as we do a lot of the work for them and may help speed up the application process. Put simply, having a broker in your corner makes it easier to find the right loan, saves you time and, hopefully, money.

How much can you afford?

The first thing we will do is work out your borrowing potential. While you may have your dream home in mind already, you need to find out if you can afford it first. There are many factors that will influence your decision around what to buy and where – proximity to work and family and your stage of life are just a few – but the single biggest decider is nearly always what you can afford.
It’s really a case of looking at the big picture and working your way back from there. Consider your household income and what you realistically can afford in loan repayments, taking into account all of your expenses (even coffees and lunches).

As a guide, a mortgage calculator can be a great place to start, but it won’t take into account all of your personal circumstances or eligibility for a loan. Talking to us will give you a much more accurate idea of what you can afford. We can look to obtain pre-approval from a lender so you can put an offer on a home when you find the one you like. Of course, even with a pre approval, a subject to finance clause is an important protection.

Finding your home

Once you know what you can afford, you can get a much better idea of what type of home you can buy and where you can live.

When it comes to the type of property and location, many first buyers find they have to compromise in some way. A free-standing home in an established, convenient, leafy neighbourhood near a CBD, great transport, family and friends might well be out of reach the first time around. If convenience is important, you may be looking at apartments instead of houses, remembering that often the closer you get to a CBD, the higher the demand and price. Your budget, for example, might only stretch as far as an older, walk-up unit if you want a property within 20 minutes of a major capital city. If you definitely want a house and garden, depending on where you are, you may be restricted to the outer suburbs or regional areas.

Plan for the future

You should consider what is most important to you now and over the next five years. Are you looking to be part of a community that’s similar in age to you? Is it important to get to and from work as quickly as possible or can you cope with a long commute, providing you have a great lifestyle when you get home? Do you have children or are you starting a family? All of these, in addition to your budget, will influence where and what you buy.

Do your research

When considering an area to buy in, look up suburb demographics and price trends over the past 10 years, plus existing and planned infrastructure, such as public transport, shopping centres and schools. If property values in one suburb have really taken off in the past five years, find out why and consider whether neighbouring areas have similar potential.

Understand the different mortgage types

There’s a lot more to loans than interest rates and fees. A low rate is obviously important, but it’s not everything. There are different sorts of loans and features that will make managing your mortgage easier. We’ll take the time to teach and advise you on the fundamentals you need to know to make an informed decision. To begin with, it’s important to know the main types of loans:

Variable

The interest rates go up and down depending on factors such as the official cash rate, market conditions, and each lender’s decisioning. When the rate goes down, so do your minimum
repayments. But when the rate goes up, your payments will too.

Fixed

The interest rate can be fixed for one to five years. Even if rates change, your repayments stay the same. This helps manage your household budget by knowing exactly what you’ll have to pay. Of course, you won’t benefit if interest rates drop and there may be significant break costs to change the loan before the end of the fixed term.

Split Rate

One part is variable, the other is fixed. This lets you enjoy the benefits of an interest rate drop but also protects you from being affected fully if they rise.

Interest Only

You only pay the interest on your loan but not the principal loan amount. Your repayments are less but you still have the same level of debt at the end of the interest only period. However, an interest only loan will usually cost more over the term of the loan as you won’t start paying off the principal until after the end of the interest only period.

Line of Credit

You can pay into and withdraw from this account as long as you keep up with the required repayments. You can have your income paid into this account to help pay off the mortgage sooner but interest rates are usually slightly higher.

Honeymoon Periods

Designed especially for first homebuyers, you can enjoy a lower interest rate for the first six to 12 months, and then the rate returns to the standard variable rate.

Low Doc

These are popular with self-employed people because they need less documentation or proof of income. However, they usually have a higher rate of interest or need a larger deposit, or both.

Borrowing from the bank of Mum & Dad

With property affordability getting increasingly tricky for some, many first homebuyers are reaching out to their families for financial assistance to help increase their borrowing power.

Partnering up with your family can reduce the financial burden and may mean you can afford a better quality property with greater growth potential than if you bought solo. But it’s not a move you should make lightly. Even if you decide to buy your first property with family, make sure you seek legal advice and ensure each party understands their financial and legal obligations. You don’t want a financial transaction or financial partnership to come between you and your family.

You should talk about what would happen if one of you was unable to cover their share of the mortgage and how you might reduce this risk. It’s also important to contemplate scenarios such as one of you wanting to sell or move out sooner than planned. As with every significant financial decision you make, it’s important to weigh up the pros and cons. If you are considering getting financial assistance from a relative, we recommend speaking to a financial planner and lawyer.

Renting out your first home

There’s no rule that says you have to live in your first property. Many first homebuyers are challenging convention by rent-investing – renting where they want to live and buying an investment property in a more affordable location. The objective for these renters is to buy where they can afford to get a foothold on the property ladder. That could be another suburb in the same city or a town in an entirely different state.

As with any investment, the key is to choose a property on financial merit, not emotion. Are you looking for capital gain over time or high rental yields right away? The investment property can be positively geared, where the rent exceeds the cost of the mortgage and upkeep to give you a profit, or negatively geared, where the rental income is less than the cost of owning and managing the property, which may create a tax deduction.

Again it’s important to seek appropriate legal and financial advice so you are well informed about how renting and taking on an investment property impacts your finances and tax obligations.

The First Home Owner’s Grant & other incentives

The First Home Owner Grant (FHOG) and other various grants and stamp duty concessions may be available to give first homebuyers a leg up. The grants usually apply to apartments and houses up to a certain value. These thresholds can vary depending on the type of dwelling and the state or territory in which the property is located. The savings can be significant, so it’s certainly worth exploring. Talk to us to find out what’s on offer under the FHOG scheme in your market. It is also worth checking if your state or territory offers stamp duty exemptions or concessions for first homebuyers.

Please note we do not provide tax, legal or accounting advice. This guide has been written for general informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisers before engaging in any transaction. Front Row Financial Australian Credit Licence: 482584