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Buying your own home - tips to get into the market and stay in
04 April 2018
Besa Deda (above) is no stranger to Ruby members. She provided expert commentary on the Federal Budget in 2017 and has been St. George Bank’s chief economist since 2008. Besa works with a team of economists, and as the bank's economic spokesperson, she is responsible for formulating views and forecasts on the economy and financial markets.
Recently, Besa provided a rundown for the Wire on what the economy is telling us about the housing market.
“Cycles are still alive and well,” she said, going on to point out: “Admittedly, sometimes cycles are shorter and on other occasions they are longer, but they never disappear. The recent period of rising dwelling prices was preceded by a period of price consolidation around 2011-2012.
“So where are we at in the housing cycle now?
“In early 2018, we've clearly moved into the mature part of the cycle characterised by slowing growth in dwelling prices and even some vulnerability in certain suburbs, which have experienced price declines.”
Her overall assessment with her team is that interest rates will go up and the market will soften.
We quizzed Home Finance Manager Jenny Smith, who works in Hamilton, a suburb of Newcastle, for her tips on getting into the market and, what to do once you’re there.
“I am seeing more and more women wanting to buy a home,” says Jenny, who believes there are a few things a potential borrower must do, no matter who they are.
- Start saving. Get as much together for your deposit as you can.
- Know what you can afford to pay.
“Knowing what you can afford is different to knowing what your borrowing capacity might be,” explains Jenny.
What you can afford means you need to understand the stability of your employment; know what you earn and what you spend and, importantly, understand how you want to live.
For example: if paying the mortgage means you can’t afford a night out with friends, and this will make you unhappy, then you need to think about your lifestyle and factor all that into your borrowing.
“You have to be able to have a life and pay your mortgage,” says Jenny, who would also counsel clients to do the sums on how they’d cope when interest rates increase.
Jenny’s other tip at this early stage in the home buying process: “Keep a very close eye on the market where you are looking to purchase. Sometimes you have to make the jump and maybe that means taking out mortgage insurance because you don’t have quite enough deposit. However, in doing so, you get into the suburb and or place you want. I’ve seen some people find themselves another year down the track having to buy two suburbs away from where they wanted to be because they had unrealistic expectations of the cost of property in the area they were looking.”
- Think about the structure of your loan: fixed, variable, a combination loan, one with an offset facility.
- Interest only or principal and interest. You need to understand the pros and cons of each structure.
- Consider your life stage. For example, if you’re single or a couple with no children: get ahead now and make extra repayments.
- If you’re about to have a child and taking advantage of parental leave options and you’re ahead on your mortgage, you could look into reducing your repayments with the bank.
- Child care is expensive. Having young children could be a time to review your mortgage with a Home Finance Manager.
- Once children are at school, you may find cash flow improves and you can pay more off the mortgage.
Interestingly, Westpac’s 2017 Home Ownership Report found that, “When thinking about their first home, women are more likely (35 percent versus 18 percent men) to consider its investment potential as essential.”
No matter how early you think about your investments, in your late 40s and your 50s, it’s often time to reassess your finances. For example: what investments are you paying off; where is your superannuation at; is there surplus cash and can/ should you use it to pay off your mortgage?
Finances, including mortgages, investments, superannuation are not set and forget.
Jenny’s advice is to seek advice regularly from experts, including your accountant, lawyers, etc. And talk to a Home Finance Manager, who can take you through various financial options.