First Home Buyer buying in now

Quite a few articles are starting to pop up warning of interest rates going up and that first home buyers who came in at the tail end of the boom will be hit the hardest.

Recently victoria changed its first home buyer rules to allow them to get discounts on a sliding scale all the way up to 750k but ultimately considering house prices in Melbourne it allows them to be semi competitive between 600-650k

My question is simple. Would you buy into the Melbourne market now and take on a 500-600k mortgage knowing that interest rate rises are on the horizon?

If not what would you do instead?

Peter. W

 

I cant comprehend a FHB spending that much on a house. What percentage of the population has an income high enough to allow them to take out a loan to purchase at hta tprice point, and has stable full time employment?

 

Couple each making average salary of about 60k each?

 

Well this is the thing. The discounts were changed because FHB's couldnt get in under 600k. What choice do they have?

 

Possibly yes. My decision certainly wouldn't turn on "potential interest rate rises" either way.

That's pretty far down the list of relevant factors to me.

 

You can answer that yourself. Open up a loan calculator online and do the sums for buying a place with an interest rate of 7.5 percent.

If you can pay that comfortably then you're good.

Whatever the repayments are, remember to add an extra $100 per week on top to cover rates, maintenance and a buffer.

 

Hell, take it to 10% for the heck of it. Even 12%. Important for the SANF (sleep at night factor).

 

I was out for a walk this afternoon, and dropped in on an inspection for an apartment in Richmond. It was $420K, despite being about 30 m2, on the top floor of a building with no lift, and wasn't in exactly the best condition.

As with a lot of property these days, I fail to see the value in it.

Most investment properties are negatively geared these days, and bought on the speculative basis that prices will double in the next decade. Any rundown house is a new development opportunity (STCA). It's more the potential that's been bought, not the actuality, and if the market slows, it won't look so clever.

 

With a 30sqm apartment I dont think you would get finance from anyone would you? I know in the past CBA didnt like lending to anything under 50Sqm - not sure if thats still the case.

 

Westpac might with a 30 per cent deposit, that's how a relative managed to secure a loan for a tiny town house. Old town house at a low price though so minimal risk for lender.

 

A lot of FHB aren't on low income, they just haven't been able to get the deposit together. Interest rate rises don't scare everyone.

 

one of the most important things about your first investment is that it will make enough capital gains in a relatively short period to leverage your first up-cycle. Capital gains are also extremely important if its your PPOR because you'll pay no CGT. If you can pull this off, you will be able to secure a nice property in a good area to raise a family. If not, you will be stuck living in your first property, which may or may not be a good thing but either way you are 5 years older and accumulated no extra wealth.

We know the market is nearing peak, FHB's are stretching, and interest rates will be going up. and history tells us that a flat period usually lasts a solid 7+ years. So odds of a standard property making enough to cover buying taxes (yes i know these are excluded for FHB, but if you don't burn your opportunity now you can use it later so you're still using the opportunity for cost savings), selling costs, additional expenses above renting, and hoping the house doesn't require significant work, still return a substantial profit to facilitate an upcycle are looking slim and risky. Personally i am holding out for more stock and a negative sentiment that puts some serious bargains on the market, but that too comes with its own risks. Happy to go into my reasoning if you want.

All i would say is that if you are dead-set on buying a place now, make sure you have a solid plan to add value. work out how cheap you could renovate and how much value the result would add. maybe it would be to build a garage. consider everything you can. And don't buy something that is being pumped onto the market at an increasing rate. (ie. a 2 bed townhouse in reservoir). oversupplies start with what's being supplied the most.

 

Probably because they will have large loans and no or even negative equity.

 

well logically if you are a couple 2 X income earing individuals who are starting a family that want to be striking distance to where they work mainly CBD- it really makes next to no difference - one would need a home irrespective.

of course majority FHB could not afford Bentleigh, Balwyn and the likes of glen Waverley - most FHB - end up in H&L.

The way I see in on this forum is quite a few ppl who want to buy start to come up with theories why they should not - from economic purposes or just to justify renting. Eitherway in Melbourne there are so many opportunities - just need to open your eyes a bit more. Either you want a pad to stay and live or either you want to chase CG in a different way.

 

Yes I can see the point being made - last in, first out and all that. First home buyers are younger and perhaps not as secure in their jobs, la la la. It all has to be considered but, as with posters above, I don't think it necessarily has to be the case.
The point I was trying to make earlier is that first home buyers are in a better position than others and will 'own' the 'affordable' market for the next few years. What I mean is that wherever they buy en-masse, they will drive out investor scum and thus gentrify, while at the same time prices could well plateau, giving them a nice window of opportunity.
Investors are being hit with P&I, higher interest rates, loan term cliffs plus they're not necessarily getting long loans or any loans at all if they're too long in the tooth. Or over-leveraged. Or lacking sufficient funds to meet the higher expectations in serviceability. Many will inevitably sell.
Gen X's who were constantly fed the line that you're better off investing rather than owning (which at times in the past was true) can now jump on board this band wagon and reap the benefits of owning their own pad in an area that will one-day become hot property.
It's a simple switch in thinking which really should occur whenever the climate changes.
Being a home-owner, you prize your family home above household budget cuts. You tend to enjoy watching your hard-earned going towards the mortgage rather than the rent, and you find a steely determination to get yourself into a more comfortable position with your loan asap by paying it down asap.
I don't mind people coming at all angles to ask curly questions though - shows they're thinking and they'll eventually come to a decision which is most suitable to them. These days there is so much info and there are so many opinions around, it's hard to know who to listen to. Take it all in but listen to yourself.
Personally, I've thought about selling one of my IP's but since it's in a fhb kind of area, I want to hang around and see even more capital growth further down the track.

 

Could always hedge your bets with a fixed rate or variable/fixed split. Seen a 5 year fixed @ 3.99% on my lenders panel last week.

Just make sure you arent intending to sell or refinance cause the break costs could sting when rates rise.

 

Thankyou all for taking the time to offer advice.

 

Doubling in a decade isn't speculation its only 8% return.

God Australians are **** at doing compound maths calculations......

When are we going to learn about abstaining and how delayed gratification delivers solid returns.