John McGrath's Expert Tips For First Home Buyers

26th OF October 2011

By John McGrath, Property Expert
www.mcgrath.com.au

For several years in NSW, first home buyers purchasing a property worth $500,000 or less have enjoyed a full stamp duty exemption worth $17,990. This is a lot of money for a young person and coupled with the Federal Government’s First Home Owners’ Grant of $7,000, young people had a real head start in the market.

As of January 1 next year, things will change. The O’Farrell State Government has decided to abolish the first home buyer stamp duty exemption on established properties and it will now only apply to newly-built or off-the-plan properties.

The underlying idea is that we need to stimulate housing construction in NSW to counter our vast undersupply. The problem is the large majority of first homebuyers purchase established dwellings.

Suddenly, our spring season is looking even more interesting! I’m expecting a surge in first home buyer demand this season, especially from those who have been sitting on the sidelines wondering what to do. This may be the incentive they need to take the plunge into home ownership.

Two issues come to mind.

1. If you’re a first home buyer, I recommend you get out into the market right now if you want to ensure that stamp duty exemption and beat the rush. When the Government changes the rules, there is always a slight lag before the masses realise they better take action. The buyers who move first in the initial few weeks of spring will not face as much competition as those who wait a month or so.
2. If you’re going to try to buy now to save that $17,990 in duty, keep that number very firmly in mind. Don’t go $25,000 over budget in order to save $17,990!

In a report released on September 5 before the Government’s announcement, Australia’s largest mortgage broker, AFG said first home buyers comprised just 15% of the market, which is pretty low. It’s been like this for quite some time now but I have always believed there are opportunities out there for the savvier first timers.

Here are my top 5 reasons for buying your first home:

1. Your home is a cornerstone asset that will provide financial security for the future, as long as you buy within your budget with a buffer for rate rises and you hold the property for at least five years to generate some reasonable capital gains.
2. Rents are very high and in a softer market, the difference between weekly mortgage repayments and weekly rents has narrowed.
3. The stamp duty exemption in NSW is worth $17,990 for first home buyers who act before January 1.
4. The First Home Owners’ Grant of $7,000 is still available.
5. The market is generally softer this year and in my view it is primed for a new cycle of growth. There is a lot of pent-up demand right now as many people hold off on buying or selling due to a lack of confidence. Interest rates are key and 3 year fixed rates have recently dropped to below the variable rate. There is also talk of a possible downward movement. Once we get that first rate drop, I think we will see an immediate affect on the market. First home buyers have a window of opportunity to buy when prices are flat in good locations that will reap capital gains.

I wish all first homebuyers the best of luck out there in the marketplace this spring. With more stock coming online, as is traditional at this time of year, young buyers will hopefully have many options in front of them.