June 30, 2011
Property prices may be flat or falling in many areas of the country and borrowers are beginning to return to the market, but life is still tough for those trying to get a foot into the property market for the first time.
The average mortgage taken out by first home buyers is $285,400, according to Australian Bureau of Statistics data for April. That means buyers need to save a deposit of at least $5700 in order to qualify for a mortgage.
However, there is only one mortgage available on the market which allows buyers to borrow up to 98 percent of the property’s value with lender’s mortgage insurance (LMI): Teacher’s Credit Union’s My First Home Loan with a rate of 7.29 percent. While they do exist, the rates on higher loan-to-value ratio (LVR) products are typically higher than those available to borrowers with larger deposits.
Plus there are a number of additional costs involved in buying a house, such as solicitor’s fees and in some cases stamp duty. Therefore, many future home owners are saving even larger amounts before they enter the market.
Given these entry conditions, it’s little wonder that the number of first-time buyers is low. In April first home buyers accounted for only 15.8 percent of all borrowers, according to ABS data. Two years ago, first timers made up more than 28 percent of the market.
What help is out there?
Fortunately there are various schemes, led both by the federal government and the banks, which aim to help cash-strapped Australians into the market for the first time. For instance, the government’s First Home Saver account scheme offers a tax-effective way of saving for a first home through a combination of government contributions and low taxes. You can find more information about government-backed schemes by visiting www.firsthome.gov.au.
Institutions also give first home buyers a head start including via help from other family members, which can use the equity in their own home to provide additional security for a portion of your loan amount. By doing so, it can reduce your LVR and save you money on LMI.
Best mortgage deals
Of course, not everyone will need a hand getting into the property market, and the cheapest way will almost always be found by saving at least 10 percent of your future home cost as deposit, and then comparing the best mortgages online.
Some of the top variable home loans available on the market include Loans.com.au Dream Loan Express with a rate of 6.58 percent, Mortgage Port Management’s Essential at 6.69 percent and eMoney’s Full Doc Variable Pro Pack at 6.71 percent, according to the RateCity database.
So compare mortgages before you sign up, because shopping around for a great deal could save you hundreds, if not thousands, of dollars over the life of your home loan.
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