A recent survey has revealed that people looking to buy their second home aren’t as financially confident or educated about real estate as you might expect.
The Westpac Home Ownership Report found 84% of Next Home Buyers (NHBs) are taking steps to improve their knowledge, with many turning to professionals or the web to help prepare them for buying their next home.
Here’s what’s letting down NHBs, plus a few answers to your lingering questions:
Feeling financially confident, i.e. feeling ready, willing and able to jump back into the property market, was a big issue among NHBs.
Across the nation, 43% were not confident, with men feeling slightly more confident (45%) than women (41%).
When it came to getting financial advice, the majority of NHBs (73%) sought the help of a professional, including their mortgage broker, real estate agent, financial planner or a property valuer. Meanwhile considerably fewer people (40%) tried to find the answers online.
Of those reporting they were in a good place financially, the largest number came from South Australia (51%), followed by the Northern Territory (48%) and Western Australia (45%).
Going to auction
Despite the number of homes going to auction increasing since late last year, NHBs are not keen to participate. Over half (56%) stated they were “too scared” to purchase at an auction, while 46% said they just weren’t sure what to do.
To get the edge at an auction we recommend you do your research, including getting a very good handle on house prices in the area. You might also consider attending a few earlier auctions to understand the process and get some practice. When it comes to auction day, don’t forget to set your budget and look confident (even if you’re not!) but try and keep your cool and think logically. Read more handy tips on auction strategy and negotiating a price.
Understanding the jargon
The report found that nearly half of NHBs do not understand relevant home loan concepts like ‘equity’, ‘offset account’ and ‘refinancing’. The worst comprehension was around the term ‘comparison rates’, which 70% of respondents could not define.
When looking at the states, the Northern Territory was most likely to suffer from a knowledge gap when it came to defining ‘equity’, ‘offset accounts’ and ‘comparison rates’. However, Victoria took the cake for not understanding ‘refinancing’.
If you’re too scared to ask, here are some definitions to start you off:
Comparison Rates: There are two types of rates – advertised and comparison. The advertised rate is often used by your lender when you apply for your loan to help entice you. The comparison rate is that plus fees, which helps you understand how much you will be paying. Lenders must share both by law. Read more about comparison rates here.
Compare your interest rate today.
Equity: This describes the value of your property, minus what you owe on your mortgage. So, if you owe $200,000 on your mortgage, and your property is valued at $600,000, you have $400,000 in equity. Equity can be used as leverage to help you secure your mortgage for your next property. Find out more about home equity and home equity loans here.
Offset account: This is an optional feature of some home loans that allows you to open a transaction account (the offset account) to use for daily spending. It is used to reduce the principal amount of your home loan, in turn, helping to reduce your interest and possibly the overall amount you have to repay. Read more about offset accounts here.
Refinancing: Refinancing your mortgage essentially involves getting a new mortgage to repay and replace your existing one. It can help you get a better deal through a better interest rate or loan period, and it is recommended most homeowners refinance every few years. Read more about refinancing here.
Words by Rebecca Mitchell.
Are you looking to buy your next property but feel out-of-practise and in need of some expertise? eChoice can connect you with one of our experienced brokers, who can help to guide you through the mortgage application process and translate the confusing jargon that accompanies it.