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New hurdle for first home buyers

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Despite lower interest rates, it’s now more costly for some first home buyers to enter the property market than it was this time last year, research shows.

The latest research from RateCity has revealed that would-be buyers need to save an extra $1430 towards a 10 percent deposit to buy a house and an extra $810 for a unit based on the national median prices, compared to 12 months ago.

RateCity based the findings on the recent Housing Market Report by Australian Property Monitors, which shows the yearly change for the national median house price for the three months to January rose by 2.7 percent. The national median unit price increased by 2 percent compared to the same period last year.

Alex Parsons, chief executive of RateCity, said it’s not all bad news for first home buyers, if they can afford the higher costs of a deposit.

“What many prospective borrowers may not realise is that when property prices rise, it doesn’t just affect your borrowing budget but also deposit. That’s because a deposit is generally a percentage of the property value,” he said.

“But if you can afford the higher costs of the current property market, or you’re lucky enough to be buying in an area that has been stable or reduced in price, you’re in a better position to maintain a mortgage compared to last year.”

The average standard variable home loan rate in the RateCity database is 5.69 percent, which is 1.14 percentage points lower than in January 2012 (6.83 percent). For the national median house price of $544,071, and excluding a 10 percent deposit, mortgage repayments have fallen by $195 per month.

Borrowers, he said, should be striving to save a deposit of 20 percent of the value of a home to avoid paying an additional charge of lender’s mortgage insurance.

“The worst thing a borrower can do is rush into a home loan without an adequate deposit. It will end up costing more and can also come with higher risk. So don’t be afraid to spend some time saving for a decent deposit,” he said.

“A good tool is an online savings account, which can be linked to your transaction account and your savings are automatically debited each month. Returns can vary significantly – from almost nothing up to more than 4.5 percent – so borrowers should make sure you use RateCity.com.au to find a good value deal.”

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