Home buyers overlooking property problems

Home buyers overlooking property problems

Nearly one in four Australian home buyers has experienced buyer’s remorse after purchasing their property, with a significant percentage overlooking potentially expensive issues when inspecting their property, according to new research from ME Bank. 

Based on a representative survey of 1000 property owners in January 2018, 58% spent less than 60 minutes checking out the property before their purchase, and 26% discovered issues with their property after their purchase, including problems with paintwork, construction quality, gardens and fences, and fittings and chattels.

Some of the reasons these buyers gave for missing these issues during their initial inspection included:

  • Fell in love with the property and overlooked them (36%)
  • Lacked experience and skill in inspecting the property (32%)
  • Impatient and tired of looking (11%)

Also, approximately one third of those surveyed said they failed to arrange a professional building and pest inspection for the last property they purchased.

As a result of buying a property with problems:

  • 74% spent money fixing, replacing or improving the issues identified, or have plans to do so.
  • 41% would have paid less for the property had they discovered the problems earlier.
  • 23% experienced a degree of ‘buyers regret’ following the purchase.

However, it was found that the presence of post-purchase property problems isn’t always a dealbreaker for all home buyers:

  • 92% said it was still worth buying the property despite the problems they discovered.
  • 19% said they wouldn’t have purchased the property had they discovered the issues.
  • 14% said they plan to move sooner than originally planned now they’ve discovered them.

ME head of home loans, Patrick Nolan, said that it was important to thoroughly inspect a property before any purchase, and to beware the potential of emotions to cloud your judgment when buying a home:

“Spend more time inspecting the prospective property with several return visits at different times of the day.”

“See lots of properties so you can compare and contrast, give weight to any niggling hunches that give you cause for concern, and get a professional property inspector to do the checking for you.”

Top post-purchase problems identified among property owners:

Problem Total First home buyers Second or subsequent buyers
Paintwork 29% 30% 29%
Construction quality 26% 27% 24%
Gardens and fences 24% 26% 22%
Fittings and chattels 20% 19% 21%
Services (hot water, heating/cooling etc.) 16% 18% 14%
Neighbours 15% 14% 16%
Illegal building work 10% 9% 11%
Noise or lighting 10% 9% 11%
General floor plan  8% 8% 7%
Location 7% 8% 6%
Valuation 5% 5% 5%
Zoning or title 3% 4% 2%

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Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out.