Paul's advice for first home buyers
My partner and I have saved a deposit for our first home and we were ready to start looking at the beginning of the year… and then COVID hit.
Buying your first home is a steep learning curve at the best of times. Add a pandemic and major economic upheaval and it makes you a little more nervous.
Currently, being in Melbourne, we are locked down again, so I reached out to Paul and asked for his advice about buying your first home amongst so much uncertainty. His reply was detailed, but first, to his tips:
- Don’t hurry. Forced supply is likely to increase, putting downward pressure on prices.
- With time, buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
- Be realistic about the level of personal debt and your own job security. Being forced out of your property by a job loss could be ugly in this climate.
- Buy where a growing population puts pressure on prices. Buy near public transport, schools, hospitals, parks and a decent cup of coffee.
- Do not believe anything an agent tells you. They are not your friend, they work for the seller only. Do your own research.
My partner and I had been planning this for a while now, you don’t just wake up and have a deposit for a house saved. So when COVID hit, we saw it as an opportunity to buy when there was a lull or dip in the market. But preceding and following Paul’s tips came his warning of caution which made me close my real estate apps.
Before emailing, he had been in a meeting where the discussion was on mortgages in arrears and the normal rate compared to now. He mentioned that banks usually have mortgage arrears of 0.8 to 1.1%. Due to deferral of repayments it is still technically the same. In reality it is around 11% (10% deferring payments).
Debate at the meeting was around the borrowers “unlikely to recover” group – hundreds of thousands of home/property owners who are at risk in 2021 of losing their property through forced sale. Obviously, banks are far more concerned about newer outer suburbs than closer to CBD established suburbs.
He stressed to have a plan in case the worst happened. After panicking I remembered we did have a plan, a plan that was in place pre-COVID because you never know what to expect. Life happens, jobs come and go, and you need be able to handle it.
Our plan is a simple one and when I write it down sounds a bit light on. We plan to only borrow what we can afford to pay on one salary and when we do buy, we plan to keep aggressively saving to build up a reserve just in case.
If you have any advice for first home buyers, we’d love to hear from you in the comments section, and if you have anything for me to add to our plan please send it through!
If you are saving for a house deposit you should try our calculator which helps you understand how much you will need to save and what risk profile to align your investing with. Click here to check it out.
Frequently Asked Questions about this Article…
First home buyers should not hurry and take advantage of potential forced supply increases that could lower prices. It's important to be realistic about personal debt and job security, and to buy in areas with growing populations and good amenities.
Being cautious about job security is crucial because losing a job could force you out of your property, especially in uncertain economic climates. It's wise to only borrow what you can afford to pay on one salary.
Buying in areas with a growing population, near public transport, schools, hospitals, parks, and amenities like coffee shops can put upward pressure on property prices, making it a solid investment.
Real estate agents work for the seller, not the buyer. It's important to do your own research and not rely solely on what agents tell you.
While banks report mortgage arrears at 0.8 to 1.1%, the reality is around 11% due to deferred payments. This indicates a risk of forced sales, especially in newer outer suburbs, which home buyers should be aware of.
A good strategy is to borrow only what you can afford on one salary and continue saving aggressively to build a financial reserve for unexpected situations.
First home buyers should have a plan in place for worst-case scenarios, such as job loss, and ensure they can handle financial fluctuations by maintaining a savings reserve.
First home buyers can use calculators to understand how much they need to save and align their investing with their risk profile. These tools can provide guidance on reaching their savings goals.
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