Buying

Real Estate Institute of Australia (REIA) President, Mr Peter Bushby says the November 2012 housing figures released by the Australian Bureau of Statistics (ABS) show that the modest response to the interest rate cuts of May, June and October has continued.

Housing finance figures for November 2012 show, in trend terms, that the number of finance commitments has increased by a very modest 0.4 per cent, following the 0.5 per cent increase in October.

If refinancing is excluded, the increase in trend terms for November is 0.4 per cent, compared to the October increase of 0.6 per cent and is the smallest increase for the last seven months.

“In trend terms, increases were recorded in Queensland, Western Australia, Victoria, the Northern Territory and the Australian Capital Territory. The largest increase was in the Northern Territory, up 2.1 per cent in trend terms whilst declines were recorded in South Australia (0.6 per cent) and Tasmania (0.5 per cent).

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If the global financial crisis has made Australians more savings-aware, then first-home buyers are taking it one step further by increasing their minimum deposit and waiting longer to buy.

The latest RAMS First Home Buyers’ Pulse Check Survey 2012 also showed the importance of family support, with 53 per cent of first-home buyers saying they had asked relatives to help them put together a deposit.

More than half (55 per cent) said they were living at home while saving to buy, including those who intended to buy in the next three months.

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If you’re thinking about taking out a new home loan remember this: there’s a big difference between what the banks say you can borrow and how much you should.

The common definition of ”mortgage stress” is this: if you spend more than 30 per cent of your pre-tax income on your home loan repayments, then you are officially in the danger zone. That ratio looks pretty outdated when you look at the numbers from the recent ABS census, which show that three in 10 mortgagees meet this definition.

Data source: homeloanexperts.com.au

Data source: homeloanexperts.com.au

In fact, a quick tour of the major banks’ online calculators by Smart Investor Money suggests they are happy to burden you with a mortgage that would lead you to handing up to 45 per cent of your gross income – and closer to 60 per cent of your take-home pay – on repayments (take a look at our shadow shopping exercise in ”How much the banks will lend you” above.)

What you need to understand is that the banks’ calculators use a ”dollar-plus” model of assessing your capacity to repay. As long as you have a dollar left over after taking into account the proposed repayments (including an interest rate buffer of a percentage point or two) other debt obligations and living costs, the loan is – theoretically – yours.

It’s easy to see that the big unknown here is the level of expenses. Some calculators ask for your estimated monthly expenses. But all use a back-up measure of how much you need to pay them back and just scrape by, based on something called the Henderson Poverty Index and, more recently, the Household Expenditure Measurement.

If you are at this line you are essentially in baked-beans-for-dinner territory.

”You don’t want to go anywhere near that,” says the research and insights director at mozo.com.au, Andrew Duncanson. ”That means you can pay it back, but it probably means it’s going to be uncomfortable.”

DISCOVER YOUR LIMITS

”My argument has always been that people aren’t very good assessors of their ability to pay,” says the principal solicitor at the Consumer Credit Legal Centre of NSW, Katherine Lane. ”They just go into the bank and ask for what they can get, and then work out what house fits that price,” she says.

That puts the cart before the horse, and is exactly the wrong thing to do. The right way to approach a home loan is to do a thorough budget. Once you have a good handle on what is coming in and going out – and where – then you can make a proper assessment of how much you can afford to repay, and therefore the size of the loan.

”I would encourage people to use an independent calculator, such as the ones at moneysmart.gov.au, rather than the calculators on the banks’ websites,” says the director of policy and campaigns at Consumer Action Law Centre in Melbourne, Gerard Brody.

Stay out of the stress zone on your home loan

GET BUFF

Building a buffer into your budget is crucial. Take our young couple above. They are probably planning on starting a family in the coming years – could they do so while being close to what is considered the poverty line for a childless couple? What if one lost their job or got sick? Or if interest rates doubled?

”Definitely try to be realistic about what you’re buying to meet you and your family’s needs without having to get too big a loan,” Lane says. ”Be realistic about having children, studying, or changing jobs.

”If all that fails and you really need the house and you need to borrow the maximum, do that but be absolutely motivated to bring the housing loan down as quickly as possible. Nobody in Australia knows whether they are going to have a job or not in the future. It can happen to anyone.”

Mortgage overload: what the banks will actually lend you

A young couple want to break into the property market. They head online to get an idea of how much they can afford to borrow. The Commonwealth and Westpac tools are straightforward. They put in their annual gross incomes – $60,000 and $40,000 – with no extra income or debts and $10,000 in combined credit card limits. Press of a button and – bingo – they discover they could borrow $478,000 with Westpac and $539,000 with CBA over 25 years and at rates of 6.89 per cent and 6.8 per cent, respectively.

ANZ and NAB’s tools are slightly more sophisticated: they ask for a general monthly expenses figure. Put in $2800 and our young couple discover they can borrow $502,000 from ANZ and $481,000 from NAB. In the same ballpark as the previous two.

All those numbers are high. But it’s when you look at the monthly repayments that the load becomes clear. The monthly obligations range from $3340 to $3740. After compulsory minimum super and income tax, the couple bring home about $6400 a month. On those amounts they would be committing from a bit more than half to almost three-fifths of their disposable income on meeting their repayments. If you factor back in the $2800 for monthly general expenses, that leaves a slender buffer of a few hundred dollars between them and struggle town.

Story by Patrick Commins, story source: www.domain.com.au

Buying your first home is a combination of nerves and excitement.

Is now the right time? Is this a good buy? Are we doing the right thing? These are just a few of the myriad of questions going through a first home buyer’s mind.

Madeleine Hicks of Madeleine Hicks Real Estate believes that first home buyers only have two decisions to make. Do I buy now and set myself to make capital gains or do I procrastinate and pay later?

“Current market conditions are favourable to buyers. The market in 3 years time will be very much different to our current market place,” said Madeleine.

delay now, pay later

“Over the next 3 – 5 years those that buy now will have substantial equity in their home due to capital growth, those that procrastinate and put off the decision to buy will ultimately be buying at a higher price in years to come,” explained Madeleine.

“Capital growth over the next 3 – 5 years will be slow but consistent. All these little gains will add up to a large gain overall,” concluded Madeleine.

If you are thinking about your first home, now is a great time.

Story source; www.villagebuzz.com.au

Recently I was at the Madeleine Hicks Real Estate National Elite Retreat where the elite of the elite met to discuss the current market trends.

In the changing market it was a consensus amongst the group that auctions were the best marketing strategy.  This is not my view.

I only auction unique properties or when I am instructed to auction e.g. mortgagee in possession.

Auctions are a seller’s worst nightmare.  The seller losses control. Notoriously buyers come in low and if there are only one or two buyers on the day the seller is pressured into making a decision there and then.  The buyer is expecting an answer, the auctioneer is waiting, the agent is waiting, the crowd is waiting, the neighbours are waiting, and the seller is panicked – forced into making decisions.

The Truth About Auctions

Recently I went with a friend to another agent’s in room auctions to help them through the auction process.  My friends were keen to buy.  I gave them some auction tips, we were one of two interested parties, and we were able to slow the auction right down.  The auction stalled the agent came across and asked them to increase their offer.  I advised them to hold fast.

The agent then went and spoke to the seller.  Reading the non-verbals I could see the pressure mounting around the poor seller.  The agent came back to us.  We said nothing.

Finally, the auctioneer asked for more bids from the floor. Silence.

Going once, Going twice, Sold!

My friends bought the property of their dreams for $20,000 under what they were prepared to pay.

Before you enter into an auction campaign just …ask Madeleine for a second opinion.

The design of the home, how it functions and how it complements your lifestyle should be a major decision-making factor when buying a property. This way, you will end up in home that will accommodate your needs now and for many years to come that can also save you money.

Too often, people fall in love with the ‘look’ of a home without considering how it will function. If you are aware of the impact that design features have within a home, you will be able to choose a home that is easy to maintain, efficient to run and will suit you lifestyle as your needs inevitably change.

1. Don’t Get “Pre-Qualified”

Do you want to get the best house you can buy for the least money?  Then make sure you are in the strongest negotiating position possible.  Price is only one bargaining chip in the negotiations, and not necessarily the most important one.  The way to make a strong offer today is to get “Pre Approved”.  This happens AFTER all information has been checked and verified.  You are actually APPROVED for the loan and the only loose end is the appraisal on the property.  It’s VERY POWERFUL and a weapon I recommend all my clients have in their negotiating arsenal.

2. Sell First, Then Buy

 If you have a house to sell, sell it before selecting a home to buy!  If you have your eye on another home, pressure is placed on you to sell your existing home sooner rather than later.  In the end you will lose money because you accepted the wrong offer and did not wait.  Another tactic is to make the Contract “Subject to the seller finding suitable housing”.

4 POWERFUL BUYING STRATEGIES

3.  Play the Game of Nines

 Before house hunting, make a list of the nine things that you want in the new place.  Then make a list of the nine things you do not want in your new home.  Use this list as a scoreboard to rate each property that you see, the property with the highest score wins!

4. Don’t be Pushed into ANY House

 Your agent should show you everything available that meets your requirements.  Don’t make a decision on a house until you feel that you have seen enough to pick the best one.  Check into the school districts of the area you are considering.  Information is available on every school such as; size of class, % of students that go to college, OP scores, etc.  It is also worth driving around the area to make sure that everything you need access to is conveniently located and that there are a variety of facilities close by.

I’ve just heard that some brokers are turning back first home buyers due to the changing goal posts within the banking system. First home buyers are just to hard for some.

This is not surprising. Currently I have a first home buyer who has extended their finance four times. We are now at just over 30 days, when they were told by the banks that they were preapproved.  When they applied the goal posts were changed.  Frustrating.

Brokers turning back first home buyers

If you are a first home buyer my recommendation is for you to go straight to the bank.  Brokers have no loyalty to banks and hence, banks are not making life easy for their clients.

…ask Madeleine for more information bycommenting on this post.  Cheers