First home buyers are starting to surge in numbers. But, with home loan costs and house prices fast rising in most Australian states, buyers are finding it difficult to keep-up with escalating costs.
The Reserve Bank of Australia (RBA) report that first home buyer numbers have risen by 2.8 percent over December to 1,321. This is the highest number in over 12-months. However, first home buyer’s are paying more for their property. The average first home buyer home loan was $322,000 in November of 2013. This rose by 7 percent to $344,000 in December of 2013.
Dr Andrew Wilson, senior economist at Australian Property Monitors, agrees that first home buyer’s are making a comeback, but he asks, “At what cost?”
In August 2013, when the Reserve Bank of Australia (RBA) last cut rates, the average first home buyer loan was $297,000. First home buyers are now borrowing almost $50,000 more. This, in turn, means that purchase prices, on average, are now more than $400,000, especially in capital cities, such as Sydney and Melbourne.
But, as many of us know, finding a home for $400,000 that is close to the central business district (CBD), in the larger cities, is not an easy task. Two bedroom units typically sell for around this price, whereas homes some 60 kilometres from the CBD can be bought from $420,000. However, at this price you are typically buying a home that is in need of improvement.
What’s even more alarming is that some first home buyers are having to rely on the support of their parents, and are pushing their borrowing capacity to almost well over the average with $1 million home loans. Parents, in these cases, are usually guarantors and many first home buyers cannot afford to live in their homes. Instead, they elect to rent out the property for a number of years and utilise the tax offset.
Of course, the biggest concern in situations where first home buyers are pushing their borrowing capacity to their limits, is this can put undue financial and emotional stress on first-time borrowers, especially if interest rates start to rise. If these first home buyers have guarantors this can help to alleviate the concern to some degree, but it may also mean that parents will be put under financial duress in the future.
Therefore, as a first home buyer, it is recommended that you ascertain your borrowing capacity before you seek to buy, and that you leave yourself a generous financial buffer to cover any unexpected costs should they arise. This way you reduce your financial and emotional stress, and find home buying an enjoyable, rather than stressful, experience.
Do you want to know more about home loan finance as a first home buyer? If you said yes, then contact eChoice and find the right home loan for YOU today.
Written by eChoice