Buying First home in Sydney- Need advice

Hi all,

We are a couple(both 33 years old) with a 3 year old looking to buy our first home in Sydney in the next 3-6 months. Due to change in employment for my husband, we are facing a slightly tricky scenario. Could anyone please advise the best way to move forward?

Me: Full time employment , currently earning $119k annually (plus $6k bonus)
Husband: Currently on a day rate contact with a Big 4 bank at a rate of $975 per day incl super [ approximately 210k per year annually ]. He just started on this new job 2 months ago (July 2021) and prior to that was on a full time employment at a pay of $145k per year.
At the time of starting the new job, he set up a new ABN (PSI business) to earn this income. The firm is GST registered but is only 2 months old.

We have savings of approximately $170k at the moment, and saving quicker than ever before now due to the Day rate pay for my husband. By the end of the year, we hope to be having savings around 200k-220k.

Our aim is to buy a PPOR in the range of 1.2M to 1.5M in the next 6 months [95% LVR and okay to pay LMI]. We are considering both options as below:
1. either a property around $1.2M with renovations for around 150k-200k,or
2. also looking for land around 900k-$1M with a build cost of approx. $500k

Really worried after speaking to a lender last week for an initial discussion and was told that my husband's income cannot be considered as he is new to the job and ABN is less than 6 months old. We were told that my income alone can be considered for the assessment, and based on our current deposit we are eligible for a pre approval for $1.15 M [95% LVR, and paying LMI which we are okay with]

Can anyone please guide what is a good solution we can work towards in this scenario?

a. Should we wait until the ABN is over 6 months old?
b. Are there any lenders who would be lending us at this stage?


Has anyone faced anything similar in the past, or are there any brokers in the group who knows what is a good way to work on this?

Many thanks,
PA

 

When you say you spoke to a lender, did you talk to someone who works at a specific bank, or a mortgage broker not directly affiliated with one specific lender?

 

Thanks for the reply and taking time to read.
We spoke to RAMS last week.
Haven't yet spoken to a broker.

 

Take care if exploring house builds at the moment. There have been supply issues for materials and that is driving price rises for materials and construction delays.

Be very careful in the contracting of a build. You want to be as absolutely sure as possible that all costs are known and covered. When I did my house build in 2013 I spent a great deal of time with the small builder ensuring everything was in the contract and the contract was fixed price.

Also do careful due diligence on the builder. My build was finished okay but the builder collapsed about 18 months after I moved in (cashflow issues). It just meant that my avenues for warranty closed (although the build was in general a quality build). Time for the build was 6 months (after DA approval and construction certificate issued by council).

With material supply issues at the moment many builders could face cashflow problems and hence be at greater risk of collapse.

If buying land it will likely take time to register so any build would probably be 12-24 months from starting so material supply issues may have eased.

If looking at building in the current climate maybe stick with the bigger well-known companies. Perhaps less risk of collapse. You will pay more for the build though.
In normal conditions these builders typically take 12 months to complete a build. I would expect this is pushing out to the 18 month mark.

The other risk to consider in a hot market is the property market dropping in the period between signing the contract and the house being completed. At the completion of the build the bank will do a valuation of the completed build. Say total value at time you sign is $1.5M ( land + house ) and your financing is based on this final value. Then 2 years later after land registers and build completes the market has dropped 10%. The bank gets a value on completion and the value comes in at $1.275M ... that leaves a gap of $225k between value at time contract was signed and value on completion. In this scenario the bank would require that you come up with the cash to cover the difference.

 

Thanks Wombat, appreciate the detailed reply.

yes, your comments makes sense especially keeping in mind the interest rates hikes expected from 2023.

Any thoughts on the ABN situation and getting a loan?

 

If you do go down the build path ... make sure you don't overcapitalise.
Make sure that from a value perspective it will be at about the average of the nearby houses.
Don't trick up the build with bells and whistles that could push up the contract value but a valuer may not pay much attention to.

The ABN situation is something for the brokers to comment on.

Have you considered going down the investment path first. Aim for a freestanding house with reasonable cashflow. Something that you can add value to later through a basic renovation.

I would imagine that you could use $80k of available funds towards an investment property in an interstate capital city. Perhaps Brisbane or Adelaide (or adjacent regional markets). This way your money is working for you in markets with strong signs of growth.

Then look to get into the market for a PPOR later.

This approach allows time for your Husband's income situation to establish a track record but still gets you in the market.

 

Thanks Wombat, that is a good suggestion.

I

 

Thanks Rolf.
Is it better to wait till save enough for 10%?
At the moment, getting to 20% savings looks unrealistic for us.

 

For the finance side I would try going directly to all the banks and maybe even their premier banking teams as your combined salary is over 300k. They can sometimes override the decisions in these situations where as the broker channel has stricter guidelines.

 

Not entirely true Sanka, many brokers have access to the private banking arm of lenders and many private banking clients need to meet other criteria not just an income component. Private banking is sometimes not all what it seems to be either, with some terrible client experiences I would not recommend a many lenders Private Banking as the level of service is not what's promised.

Using a broker is OP's best bet here, going direct to all the banks is a terrible idea.

 

Just going by personal experience as we were in a similar position. Broker advised we have to wait for a few months buy premier banking team said all good. So I don't think its a terrible idea but yes maybe the broker we had didn't have those relationships.

 

That's your experience however your financial position was not the same as the OP at all.