Australian property prices show no sign of easing. If you’re a first home buyer, eager to jump into the market, you’ve probably been keeping an eye on federal and state government grants and stamp duty exemptions in the hope that they can help you buy your first home faster.
There’s no denying these schemes can provide a helping hand when the time is right to buy, but rushing into the mortgage market can be a recipe for disaster. Last year, as mortgage stress was on the increase, the Reserve Bank of Australia warned that some first home buyers over-committed themselves by relying on first home buyer grants to enter the market. In extreme mortgage stress situations, where you are unable to meet repayments, you can lose your home.
As state governments reassess the efficacy of grants and exemptions and consider axing them, it might be tempting to rush the process of buying a home to make sure you don’t miss out.
Already, on 1 January, the NSW state government abolished stamp duty exemptions for first homer buyers purchasing an existing home. Exemptions now only apply to newly constructed properties. In Victoria, the Office of State Revenue will reduce stamp duty concessions for eligible first home buyers by half, incrementally over the next four years.
In South Australia, the first home buyer grant will be reduced from $8000 to $4000 from 1 July 2012 and abolished from 1 July 2013, while in Tasmania stamp duty concessions for first home buyers ceased on 16 June 2011. In Queensland, a $10,000 Building Boost Grant, which was due to expire at the end of this month, has been extended throughout April.
Rather than jumping in with a smaller deposit to cash in on the final weeks of government grants, the smart course of action is to save longer for a more substantial deposit. By saving longer for a deposit before entering the property market you could be tens of thousands of dollars better off.
Consider the numbers – borrowing $380,000 at an interest rate of around 7 percent to buy a $400,000 property might set you back approximately $2686 per month and cost you about $426,000 in interest over 25 years. With a little more patience, saving an extra $30,000 for your deposit and borrowing just $350,000 at 7 percent could save you around $34,000 in interest over the life of the loan.
By comparison, any savings from the government schemes seem less favourable.