First home buyers should consider their property as both a place to live and a cornerstone financial asset. Your first property is likely to fund your second, so you need it to achieve good capital growth. Therefore, Ann Paterson Real Estate recommends buying the best property you can, within the category you can afford; and holding it for the long term to ensure excellent re-sale or rental value in the future. So, the first step in working out what you need to save is working out your likely purchase price.
What’s the purchase price?
Say you’ve chosen your target suburb and your budget won’t stretch beyond a one-bedroom apartment. Find out the median price and average size of a one bedder in your area and aim to buy better, if you can. Try for a better street; 8-10 internal sqm above average; great light; and a balcony. To keep the purchase cost down, go for unrenovated so you can add value later when you can afford it.
In terms of your savings plan, add 10% to the median price for one bedder's and this will give you a decent ballpark purchase price. This is a general guide only – give us a call to talk this through! Our team at Ann Paterson Real Estate can present you with the most up-to-date information about Sydney’s East or any other region you’re looking to buy in. We can suggest suburbs or areas where you’re more likely to find properties within your budget.
The standard deposit is 20%. At this level, you won’t have to pay lenders’ mortgage insurance (LMI), which can equate to thousands of dollars and protects only the lender, not you! Some banks are willing to lend up to 95% of the purchase price with the LMI added to the loan. Genworth, a leading LMI provider, has a calculator on its website to estimate LMI premiums. On a $550,000 purchase with a 5% deposit and a 30-year loan term, your LMI would be $23,500.
The Federal Government’s First Home Super Saver Scheme allows you to make voluntary contributions of up to $15,000 per year into your superannuation account. These contributions are taxed at the super rate of 15% instead of your normal marginal tax rate based on your salary.
This tax saving means you keep more of your money and any earnings you receive can be withdrawn, along with the contributions, to buy your first property when you’re ready.
The overall maximum you can contribute is $30,000.
Stamp duty on the transfer of property is an expensive state tax, so you’ll need savings to cover this. Google ‘stamp duty’ and your state name to find out how much you’re likely to be up for based on your anticipated purchase price.
Say the one-bedroom apartment we discussed earlier was in Sydney, NSW. On a $550,000 purchase, the stamp duty would be $20,240. At least, it would be ordinarily. Right now, the NSW Government is offering stamp duty concessions to first home buyers and all purchases (both new and old properties) under $650,000 are stamp duty-free. There is a sliding scale of concessions up to $800,000, too. Other states have similarly generous breaks. Stamp duty concessions represent a huge saving and could bring your purchase forward by many months or even years, so be sure to investigate what concessions are available in your state.
On top of stamp duty concessions, many states are also offering First Homeowner Grants.
Here are two examples:
These include the loan application fee; conveyancing and disbursements; the title search and registration; insurance; and potentially several pest and building reports. Aim to save at least $5,000.
Before you buy, you need to make sure you can hold your property in tough financial times. The longer you hold your property, the better the capital growth, so this is really important. Use an online repayments calculator to check you can afford your loan at Australia’s long term average interest rate of 7.0%-7.5%. You are considered to be in ‘mortgage stress’ if your housing costs exceed 30% of your income but of course, individual circumstances apply here.
We also recommend putting together a separate cash fund to cover life’s emergencies, such as job loss or a health crisis; as well as unexpected expenses with your first home. Holding costs have to be manageable, or you won’t be able to keep your first home long enough to maximise capital growth.
To find out more about your options, contact Ann Paterson Real Estate and we can help you discover what you need to get ready to buy your first home.