Tips and tricks for first-home buyers

A raft of state and federal government incentives designed to stimulate the property market are giving first-time buyers an unprecedented level of support. Depending on whether you’re looking to buy in the city or the regions, building new or buying an existing home, the combined government assistance could be worth $50,000 or more.  

Check out the state government revenue office website or talk to your mortgage broker to see if you are eligible for the following:

• Stamp-duty waivers: First-home buyers pay no stamp duty on properties valued up to $600,000, a saving of around $30,000 at that price point. There are also discounted rates for first-time buyers on properties priced between $600,000 and $750,000. Those on a bigger budget will also benefit from general stamp-duty discounts announced in the most recent state budget. These discounts, which apply to homes up to the value of $1 million bought before 30 June, waive 50 per cent of stamp duty on new homes, and 25 per cent on existing homes.
• First Home Owner Grant: Those looking to buy or build a new home valued up to $750,000 may be eligible for a First Home Owner Grant worth $20,000 if the home is in regional Victoria or $10,000 if it’s in the city. To be eligible, the home must be less than five years old.
• Home Builder Grant: The federal government has extended its Home Builder Grant to the end of March 2021, albeit at a reduced amount. Eligible owner-occupiers can now apply for a $15,000 grant to build a new home up to the value of $850,000, or substantially renovate an existing home valued at up to $1.5 million. The building contract must be signed by 31 March.

But be warned, while these grants give aspiring first-home buyers a welcome boost, they have also fuelled demand, potentially driving up prices in the locations you’re considering. And if you’re building new, you’ll need to look into a construction loan, rather than a conventional home mortgage. This will allow you to pay for the development in stages so that you can afford to live elsewhere in the meantime. 

The most generous government incentives are available for those planning to build a new house, especially in regional areas. But when looking for land it’s important to do your research. You might find a dirt-cheap regional block, but sometimes it can be hard to get a loan for land that’s under rural zoning, particularly in remote areas. There may also be specific overlays that limit what and where you can build, for example a vegetation overlay may prevent you removing protected trees and plants.  

It’s also essential to consider the home insurance premiums. A property in a bushfire-prone location may be more expensive to insure, which could affect your budget. It’s a good idea to talk to a mortgage broker about all the ramifications before you commit to a particular piece of land, and also check out the property’s details, including zoning, overlays, easements and price history with RACV business partner Landchecker.

Government incentives are great, but you’ll need to have your deposit ready. While it is possible for first-home buyers to pay as little as five per cent deposit, using the government’s First Home Loan Deposit Scheme (whereby the government guarantees your lender up to 15 per cent of the purchase price), experts recommend saving up as big a deposit as you can. 

Dan Peterson, chief executive of RACV partner iBuildNew, which helps buyers compare home builders and house-and-land packages, recommends saving a 20 per cent deposit. He notes that the First Home Loan Deposit Scheme is available only to limited numbers. “And remember, with such a low deposit your monthly mortgage repayments will be higher.” He says a bigger deposit will give you decent equity in your home to provide a financial buffer in case of unforeseen circumstances.  

But saving $120,000 needed for a 20 per cent deposit on a $600,000 home can be daunting, so it’s worth thinking about creative ways to help you gather the funds you need, fast.  

Consider getting really ruthless about your spending with a ‘power-save’. That means knowing exactly how much you make each month, calculating your essential spending such as rent, petrol, mobile phone, food and other not-negotiable bills, then putting everything else in a savings account you can’t easily access. You might want to auto-transfer a percentage of your income each month to the account.  

First-home buyers can also use their superannuation fund to help turbo-charge saving for a home. The First Home Super Saver Scheme allows eligible first timers to contribute up to $15,000 a year to an Australian super fund (with a $30,000 lifetime limit) which can be withdrawn along with earnings and used towards the purchase of a first home. This means you can take advantage of the favourable tax treatment of super to boost savings, especially if you can make pre-tax contributions to your super fund via a salary-sacrifice arrangement with your employer. 

If you don’t feel that you’re making enough to save fast, consider a side-hustle – a second source of income that you derive outside your regular working hours. Perhaps you could drive for a ride-share company, take on babysitting work or turn a hobby into something that generates cash. Your social life might take a hit, but it will help you reach your deposit goal faster.  

It won’t suit everyone, but many people move back with their parents to help them save for a deposit, or consider house-sitting to help bypass rent.  

Saving on your own can be tough, which is why some first-home buyers band together to achieve their property dream. If you have a sibling or friend who is also keen to break into the property market, and is in a position to contribute an equal amount to the deposit and mortgage repayment, it’s worth considering pooling resources to boost your borrowing power.  

There are potential pitfalls in these arrangements, so it’s important to get professional legal and financial advice up front and agree on the details, such as what happens if one party can’t keep up their share of the mortgage repayments, or wants to sell out early. Depending on your circumstances you might buy the property under a joint tenancy agreement where joint owners act as a single entity and manage the property together, or you may set up a ‘tenants in common’ arrangement, whereby each individual owns a proportionate share, which they can sell if needed. 

Many first-home buyers quickly realise that even with government incentives, they can’t afford to buy in the suburbs where they’d most like to live. Rather than compromise on lifestyle by moving far away from work, friends and favourite places, they opt to rentvest instead. Rentvesting involves buying an entry-level property in an area where you might not necessarily want to live and renting it to tenants while you continue to rent in a location that better suits your lifestyle. You might be able to get a toehold in a growing suburb or regional centre where property values increase over time.

If you want to be eligible for any of the first-home-buyer grants or incentives, you’ll need to live in your property for at least a year before renting it out. But as a landlord you may be able to negatively gear your property, which means if the costs associated with owning the property – such as mortgage repayments, rates, insurance premiums and maintenance – exceed the rent you earn from it, you can claim the difference as a tax deduction. If for example your tenants pay $1200 per month rent and your mortgage is $1500 per month, you may be able to claim a $300 tax deduction on the gap.

Even with the government grants and incentives, buying a home remains difficult for many young people. That said, a new generation of buyers are turning the concept of paying off a 30-year mortgage on the three-bedroom house in the suburbs on its head.

Some build small homes off-grid to keep their costs down, at the same time minimising their environmental impact. Just bear in mind, if you want to go down this road, you’ll need to find a patch of suitable land and have at least $50,000 to pay for materials and construction. You’ll also need to consider plumbing and power.  

Others have managed to get a toehold in the property market by buying a vacant plot of land and relocating an old home to it, rather than building from scratch. There are plenty of companies found online that specialise in saving old homes from demolition and moving them. It might cost you about $100,000 for the home, plus the cost of transportation. Just make sure you read the contract to clarify exactly what is covered before you commit, as the home may suffer some damage as it is broken into parts and transported on a truck. The relocation company may cover the cost of re-plastering, but there could be a lot of extra work needed to restore it to a liveable condition.   

Short-term rental services such as Airbnb have also changed the property-buying game, enabling savvy buyers to invest in holiday shacks in areas with strong tourism demand, then pay off the property with income from regular paying guests.  

And unconventional dwellings, such as an old church or barn, can also offer an opportunity for those with the vision and practical skills to convert it into a home. When doing your sums you need to factor in the cost of tradespeople and time for your own manual labour. Budgets can quickly blow out if the property needs a complete fitout.   

As the property market surges ahead and your news feed is full of low interest rates and government incentives, it’s all too easy to get caught up in the fear of missing out. Before you dive in, it’s important to think carefully about what you can feasibly afford, factoring in your bills and the cost of living. You don’t want to put yourself under financial pressure just to get into the market. There’s nothing wrong with waiting until you have the funds to comfortably make the leap to home ownership. Owning your own home can be a great experience but not if it means sacrificing sleep, your peace of mind and enjoyment of life.