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RateCity shows you why you shouldn’t give up on your dream of owning your own home while the housing market plummets.

June 23, 2010

Is it your dream to own your own home? Well, don’t despair, the day where you sign on the dotted line and the keys are handed over to you may still be in your sights.

The Australian Bureau of Statistics (ABS) recently released figures showing the number of home loans for new and established owner-occupied properties written in April is the lowest level it has been in over nine years. Since April 2009, the total value of mortgages on owner-occupied properties has dropped by $3.27 billion to $13.71 billion.
The report also showed investment-housing loans increased in value since April 2009, however the total value of housing commitments overall remains lower than the previous two years.

“[Last year] saw a lot of incentives for first home buyers to enter the market –  the lowest interest rates in a generation and extra federal and state government grants most importantly. These things had the effect of bringing forward purchases that otherwise would have happened in 2010, and so we’re seeing the after-effects now,” RateCity’s CEO Damian Smith said.

“There is also no doubt, however, that the rise in interest rates over the last nine months has scared off many home buyers, with repayments for a $300,000 mortgage having increased by almost $300 per month since before rates began to rise in September 2009.

“But just like the old adage of selling straw hats in winter, these trends also offer an opportunity for some prospective buyers.

“If you have saved your deposit, have researched the home loan market thoroughly, worked out your budget and have left yourself a 2 percent buffer in case rates rise in the future, then you may be able to take advantage of the slowdown in the housing market before the real estate season picks up again in spring.”

Despite interest rates remaining static, home buyers will still need to be careful when entering the property market.

“As well as the 2 percent buffer, a good guide is to make sure your repayments are less than 30 percent of your income,” Smith said, “which is about $1000 per month for a $60,000 salary and a loan size of about $150,000, otherwise you will be under mortgage stress.”

He said selecting the right home loan will make a massive difference to your repayments and you could save thousands of dollars in interest.

For instance, RateCity’s top standard variable rate home loan (current as at June 18, 2010) is 6.39 percent with State Custodians, which is 64 basis points below the current average standard variable rate of 7.03 percent. This difference on a home loan of $300,000 you could save $115 per month, $1380 per year or over $34,500 over the life of a 25-year loan.

 

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