For first home buyers looking to get a foot on the property ladder, it’s no secret that taking that first step is much harder than their parents’ generation.
House prices are significantly higher nowadays and wage growth has been relatively stagnant over recent years. These barriers, paired with the added stress of looking for a home during the Coronavirus pandemic, makes for a nerve-wracking first home buyer experience.
As Australia enters its first recession since the early ‘90s, uncertainty in the economy will be on the forefront of most buyers’ minds. Many first home buyers may be wondering is now really the best time to buy a home?
However, not all hope is lost, as there are advantages to buying a home during a recession. In fact, the latest Australian Bureau of Statistics figures found that the value of new loan commitments actually increased in June by 6.2 per cent, in seasonally adjusted terms. Meaning, as COVID-19 restrictions eased in May, more people were able to attend auctions and open houses, and a sense of normalcy returned for would-be buyers.
Here are some key factors that would-be buyers need to know about buying their first home during the Coronavirus pandemic.
What you need to know about buying a home during Covid-19:
- Stability is key
In such uncertain times, demonstrating stability in your finances can be crucial in getting your loan application over the line. This can mean anything from working to improve your credit score, as borrowers with excellent credit scores typically receive lower interest rates; or sticking in a full time job for at least 12 months, as this shows stability in your income.
You may also want to save at deposit of at least 20 per cent, or more. This may indicate to lenders that you’ve got a good savings history and are responsible with your finances. But more importantly it means you’re taking on a smaller debt size.
- Risks are higher
All that being said, you’ll still need to be realistic that a recession is a more uncertain time for your finances. You are at a higher risk of losing your income or being put on a reduced income because of COVID-19. If this were to happen while paying off a mortgage, it could lead to a lot of added financial stress and, worst-case, may result in defaulting on your loan.
Further, if you’re looking to buy with a partner and they lose their job, you’ll lose that income towards your borrowing power, and may not be able to get the home loan amount you want.
- Interest rates are low
The biggest advantage of taking out a home loan during a recession brought on by the economic impacts of COVID-19 is that home loan rates are at historic lows. The Reserve Bank of Australia meets on the first Tuesday of each month to set the cash rate. The cash rate is currently at its lowest point in recent memory at 0.25 per cent.
This cash rate is an influencing rate for banks, and when the cash rate moves, variable mortgage rates tend to follow. With the cash rate so low, home loan rates are rock bottom. Meaning, your potential home loan repayments will be much more affordable in part due to the Coronavirus pandemic.
Some of the lowest home loan rates in the market can be found at Reduce Home Loans. If you’re considering buying your first home, check out some of our rock-bottom interest rates for first home buyers today.
Find out if you’re eligible for a home loan from Reduce by calling us on 1300 733 823, or submit an enquiry online. Standard lending and servicing criteria apply.
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