Diving into the deep end | The Courier-Mail

ARE you fed up paying your landlord's mortgage and wondering if now is the time to dive in and buy your own place?

Rising rents and a lack of available rental properties means right now you could possibly afford to purchase a property with little or no change to your current expenses.

More than 42,000 Australians have taken up the first-home owner grant offered as part of the Federal Government's stimulus response to the global financial crisis. New South Wales has seen the highest uptake, with 14,404 first-home owners receiving the boost, followed by Queensland (9319) and Victoria (8632).

The grant sees first-home buyers given $14,000 (up from $7000) and first-home builders $21,000 (up from $14,000). It reverts back in July.

More than one third of Australian households are renting, the biggest age group being 35 to 44-year-olds. But before you make the leap to home ownership you should ask yourself how secure your employment is. You have to consider whether you have any concerns about the health of the business you work in and be careful about over-committing.

Suncorp wealth adviser Leanne Wilson says it is "most definitely" still cheaper to rent than buy when looking under $450,000."It works out that the rent is about 74-84 per cent of mortgage repayments, with a 20 per cent deposit and 6 per cent interest over 25 years," she says."And of course that doesn't factor in the cost of maintenance of the property and rates, body corporate fees. Obviously renting also gives you flexibility, especially when you are in a job where you move around a lot."

The attraction for a lot of people is also the lifestyle. If they can't afford to buy near the CBD, rent is an affordable option. "The median weekly rent for a two-bedroom house in inner northwestern Brisbane is $400 a week or about $1730 a month. A two-bedroom unit in the inner city will cost you $430 in weekly rent, or $1860 on average per month, according to December quarter data from the Rental Tenancy Authority.

In comparison, a $300,000 home loan with a basic interest rate of 5.91 per cent a year over 30 years would be $1782 a month in repayments. A $400,000 loan would see you paying back $2376 over the same term at that rate.

The number of first-time owners has risen by 18 per cent since the grant was increased. Builders such as Devine Homes, for which the low-income earner is a crucial target, hope the grant period will be extended. Devine has launched a campaign offering to double the first-home buyer's deposit on house and land packages bought before the end of June. Buyers will also receive free mortgage payment insurance for 12 months. Devine's house and land packages range from $299,900 to $419,000.

The Government has made it clear it will not offer open-ended incentives to any part of the economy, and it is not known how it regards the stimulus to one sector of the housing market when other markets such as investment property are plummeting.

However, there are signs the Government's increase in the first-home owner grant is having an impact on home building. Building approvals in February surged by a seasonally adjusted 7.8 per cent, the first increase in the monthly series since June last year.

But the Master Builders of Australia have a pessimistic outlook for their trade, saying there is likely to be significant job losses in 2009 and 2010. MBA chief economist Peter Jones wants to see the eligibility period for the $21,000 first-home builders grant extended.

But the real estate agents are laughing.Over at Ray White, a record $2.37 billion in sales were posted last month, thanks, in part, to the boost to the first-home owners grant. Ray White's Mark McLeod says it was the group's strongest sales month in 18 months and a 15 per cent improvement on the corresponding period in March, 2008.

While the grant has its critics, who suggest it artificially inflates residential property prices, it is clear the take-up rate is high and it will stimulate a housing construction cycle as existing inventory is cleared. First-home buyers are having other incentives thrown at them, too. If the first-home owners buy a property for less than $500,000 they do not pay stamp duty in Queensland. Similarly, many developers are matching the grant with cash, holidays or appliances.

But remember, first-home buyers should aim to pay no more than 30 per cent of their gross income in mortgage repayments. Also, they should factor in an extra 1 to 2 per cent on interest rates to take into account future rate rises.

Many people with a mortgage repaying 40-50 per cent of their income to the bank are in severe stress. Still, developers are reporting increased traffic through home display villages, while auction clearance rates are up sharply in existing homes under $500,000.

So far, variable mortgage interest rates have fallen by about 4 per cent since September and banks remain willing to lend for mortgages. While they do want more collateral, the major banks will lend over residential property.

Mortgage Choice senior corporate affairs manager Kristy Sheppard says renters should definitely consider moving into property ownership, whether to buy a home or an investment property. "At present, opportunities are fantastic for potential property owners who are confident of their job security and/or financial situation," Sheppard says."The historically low interest rates, government incentives such as the first-home owner boost, low rental vacancy rates and continuing high levels of population growth are all positive factors for Australians looking to buy a property."

Those who are currently renting are paying their landlord's mortgage repayments when in fact they could be paying their own.

Diving into the deep end | The Courier-Mail

First Home loan Specialists Comment

The message is loud and clear in this article. "This is a good time to buy into the property market as long as you do not overcommit yourself and have good job security." These risks can be managed and you should be helped with these decisions by a good mortgage broker.

Greg Brierley
Principal
T: 1300 884 809
E: greg@firsthomeloanspecialist.com.au
W: www.firsthomeloanspecialist.com.au

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