Despite a year filled with challenges and uncertainty, the Great Australian Dream of owning a home is still alive for many first home buyers.
And for some capital cities, such as Sydney and Melbourne, the impacts of Covid-19 on the economy and our day-to-day lives meant that housing prices fell for some months. Paired with a record-low rate environment, and the First Home Buyer Deposit Scheme, first home buyers began flooding the property market at a higher rate for the first time in a long time.
For the month of September alone, Australian Bureau of Statistics (ABS) figures showed that first home buyer loans grew 45 per cent from the same time last year, and 6 per cent from the previous month. First home buyers accounted for 13,040 approved loans in September 2020.
But with house prices on the rise again across Australia, what steps can first home buyers make today to help get a foot on the property ladder? If you’re looking to secure your first property in 2021, here are a few tips you may want to consider.
1. Set a budget and stick to it
Arguably the most important thing a would-be buyer can do in 2021 is to set a strict budget for their savings – and stick to it. As we enter the new year, the influx of holiday parties and gift buying comes to an end. So, you have no excuse to not buckle down and start saving.
Firstly, you’ll need to work out just how much you want to save. Most financial experts recommend saving at least a 20 per cent deposit. This helps you to avoid paying costly lenders mortgage insurance (LMI), and generally may mean you’re more likely to be offered a more competitive home loan.
If you’re not the best at sticking to a budget, Reduce Home Loans may be able to lend a helping hand. Consider using our Budget Calculator to perform a financial health check on your finances. Take a look at what expenses you can cut down to boost your savings, and what costs you can reduce by looking for cheaper alternatives.
2. Calculate how much you need to save
Before you begin saving, you need to have an idea of what exactly your savings goal is. If we’re going off of a 20 per cent deposit, you may be wondering ‘what amount will I be able to spend on a property?’, as this will inform exactly how much you need to be saving.
One of the easiest ways to work out how much you can borrow before you start savings is to use the Reduce Home Loans Borrowing Calculator.
Simply enter a few key details that lenders will evaluate, such as your income and regular expenses, and you’ll be shown an approximation of how much you could borrow. Then, consider calculating what 10-20 per cent of this amount is and use this as a savings benchmark.
3. Ditch frivolous spending now
One of the little-discussed tips when trying to nab a home loan is to go through your expenses with a fine-tooth comb. As the Borrowing Calculator mentioned above will show you, every expense you have will be factored into your borrowing potential.
This doesn’t just include your rent and utilities though, it also includes ‘entertainment’ spending. If you have a regular UberEats habit, a lender may assume that for the life of your potential home loan, you’ll be buying takeaway multiple times a week. It may then subtract that amount from your total borrowing power – meaning you’re borrowing less money. Even something as simple as swimming lessons for children may be considered an ongoing 30-year expense, despite common sense saying otherwise.
While you’re working hard at saving a deposit, consider ditching your more-frivolous spending habits now. This includes takeaway food, online shopping (especially AfterPay or ZipPay addictions), weekly dinners with friends and more. If you want to still enjoy these parts of life, consider paying in cash so it does not show on a bank statement.
4. Take advantage of government assistance
There are a range of types of assistance your state or territory government may be able to offer you if you’re a first home buyer. These can vary depending on where you’re looking to buy, but may include:
- First home buyer grants and schemes
- Stamp duty concessions
- Stamp duty exemptions
One of the most talked about government assistance schemes from 2020 has been the First Home Loan Deposit Scheme. This program offered up 10,000 places with 27 participating lenders to help first home buyers with deposits of at least 5 per cent get a foot on the property ladder without having to pay LMI. The scheme ‘guarantees’ the remaining deposit size up to the 20 per cent benchmark.
As mentioned before, when saving for a home loan borrowers are typically encouraged to have a deposit of at least 20 per cent. The First Home Loan Deposit Scheme has helped to bridge the affordability gap for first home buyers, particularly in cities where a 20 per cent deposit may equate to hundreds of thousands of dollars.
While there are a few risks associated with buying a property with only a 5 per cent deposit, it’s still worth considering if this scheme, and other assistance programs, may be able to help reduce the upfront costs of saving for a home loan in 2021.
5. Compare home loan lenders
One of the most valuable tips a would-be buyer may want to consider when saving for a home loan is to really do their research around which lender they want to apply for a home loan with.
A common mistake many homeowners (experienced or first time) make is to just stick with the same bank they’ve been with since they were a child. Unfortunately, this may result in missing out on thousands in reduced interest, waived fees and even helpful loan features.
Generally speaking, big banks in Australia will offer higher interest rates and fees on their home loans as they have larger overheads. However, competitor lenders like online lenders and neobanks may have an advantage in this regard.
By skipping the costs of brick-and-mortar branches, as well as bloated executive boards, competitor lenders can keep costs down and pass on the savings to their customers. This is one of the reasons why Reduce Home Loans has been a leading low-rate lender in Australia for years.
So, when it comes to choosing your home loan lender, consider looking outside of your childhood bank and comparing your options.
If you want to see the difference a record-breaking home loan lender can make, consider contacting a Reduce Home Loans Finance Manager to determine your best option on 1300 733 823 or drop us a message today.