5 STEPS TO GETTING ON THE PROPERTY LADDER
from mortgage adviser Raj Ladher
With Sydney property prices skyrocketing over the past 24 months, first home owners are the first to get hit. Figures released by ING Direct found that the average age of first home owners in Australia had increased from 34 to 37 in the past decade, and in NSW it’s higher at 38.
Not surprising with the average Sydney house costing $1m and apartments $660,000. Based on these figures, a 10% deposit and the stamp duty costs would equate to around $145,000 to buy a house and $95,000 an apartment.
There are several options allowing first timers to get onto the property ladder sooner.
1. Expert advice – first home owners need to educate themselves early on. Speaking with a qualified mortgage professional can pay dividends as they know the mortgage market, and will give you a plan tailored to your personal circumstances. Getting a budget in place will allow you to stick to this plan.
2. Low deposit
mortgages – although many banks have tightened up their policies on borrowing capacity and loan to value ratios, there are still some banks offering a 95% mortgage. While these types of mortgages attract a higher level of mortgage insurance, it does allow first home owners to get onto the property ladder sooner and start building equity. 3. Family guarantee – if you have a parent who has equity in their property, some banks may use that as collateral in order to mitigate you requiring a deposit. The bank will provide you with up to 100% of the purchase price plus costs. Secondly, if you’re slightly short to borrow the full amount of the loan, some banks may take your parents’ income into consideration. Once your property is at an 80% loan to value ratio or your income is enough to support the loan, the banks can release your parent(s) of their responsibilities.
4. Rentvesting – more first home owners are moving to ‘rentvest’ in order to get their foot onto the property ladder – where you purchase an investment property in a location you can afford and you continue to rent where you want to live, such as close to the city or work. As this is an investment purchase, you need to seek professional advice to see if this option suits your circumstances.
5. First home owner
concessions – there are many grants and concessions available for first home owners, though in NSW you generally have to buy a brand new property for less than $650,000 to be eligible. These concessions are only generally available for owner-occupied properties. Refer to the Office of State Revenue website for grants and concessions.
While getting onto the ladder is the important part, this first property may not be your forever home - that may be be out of your range - but a two bedroom apartment or smaller townhouse could be affordable. Don’t forget when you sell to upgrade to your next property, that the profit is tax free if it’s your principal place of residence. Raj Ladher is a local expert on mortgages and financial matters. Originally from the UK, his consultancy firm is now based in Sydney.