If you’re hoping to buy your first home in the near future, you may relate to feeling a bit impatient at the whole process: waiting for savings to grow, waiting for property market conditions to be in your favour, waiting for pre-approval … the list is endless! Luckily, some parts of the property-buying process are in your control. A few simple tweaks here and there can help you get into the property market sooner.
If you’ve almost managed to scrape together a deposit on your first home – congratulations! Saving for a deposit is a huge achievement and one you should be proud of. While you may think the hard yards are over, navigating the property market can be pretty confusing. You’ll quickly need to get your head around complicated concepts like mortgage repayments, house prices, reviewing sales contracts, choosing a location to buy in and more!
1. Gather a team of experts
But you don’t have to face this steep learning curve alone. Gathering a team of trusted experts to guide you through the property journey will help you get into your dream home sooner. Some experts you might want to reach out to include: mortgage broker, financial advisor, solicitor or conveyancer and a buyer’s agent.
The fees for these services can quickly add up (many solicitors, for example, charge by the hour), so it’s worth checking out budget DIY options like Contrax, a tech-enabled law firm that will review your property contracts for a set fee of $75. For that fee Contrax will also help you uncover any legal issues with the contract and negotiate with the vendor to remove unfair clauses and personalise the deal to your individual needs.
The reality though, is that saving a deposit for a house is not easy. Soaring property costs have made it close to impossible for many young people on average salaries to save. Which means it’s important to consider the government incentives open to you.
2. Take advantage of the government’s property-buying incentives
Helen Baker, a licenced financial advisor and founder of On Your Own Two Feet says young home buyers should consider the government’s First Home Loan Deposit Scheme (FHLDS) and the First Home Super Saver Scheme (FHSSS) to get into the property market sooner.
First Home Loan Deposit Scheme
A young couple with a combined salary of $120,000, for example, could buy a $600,000 apartment using the new Scheme, says Helen. “They need a deposit of $30,000 plus administration costs and would need to save about $1260 a month – $630 each – to get this deposit in place in two years. This is 15.7 per cent of their monthly salary after tax. There are various ways Aussies can meet this goal by tweaking their financial habits and making other small changes along the way.”
First Home Super Saver Scheme
“If your cashflow allows for it, consider the FHSSS, which will enable you to save for your first home within your super fund by making voluntary contributions,” says Helen. “The total cap is $25,000 less your employer contribution. You can make a voluntary contribution to the maximum of $15,000 in one financial year, and up to $30,000 in total. The benefit of this salary sacrifice arrangement is you’re taxed at 15 per cent going into super, instead of your marginal rate of up to 46.5 per cent when you save outside super.”
But Helen says there are some aspects of FHSSS first home buyers need to consider. “When you withdraw the funds, you pay tax on that money but with a 30 per cent rebate i.e. if your marginal tax rate is 32.5 per cent as above, you would net 2.5 per cent tax. Given you intend to save this money anyway, you get a win: a saving of 17.5 per cent on the way into super, less 2.5 per cent tax on the gap on the way out – netting a gain of 15 per cent or $4,500 – higher if you are in a higher tax bracket. Additionally, you benefit from a forced saving as you can’t touch superannuation until you meet a condition of release.”
3. Get a spending plan
“Budgeting is associated with being tied down and handcuffed – you’re saving with a purpose, but it’s not sustainable in the long term,” says Helen.
“Instead, assess your finances by having a spending and investment plan, where spending includes any bills, fixed commitments, credit cards, holiday and ‘pocket money’, and investment is your home deposit savings. If you’re ‘budgeting’, it indicates that you’re strict for a short period, but you also need to prove to your lender that you can meet mortgage obligations and have money on the side for the future.”
4. Prioritise paying down debt over saving
“Pay off credit card debt and personal loans as soon as possible to minimise the interest payable, starting with the one with the highest interest rate,” says Helen.
“Credit cards incur around 20 per cent interest, which quickly adds up and could also jeopardise your chances of getting a mortgage if you have a poor credit rating. If you’re wondering which to prioritise between getting rid of debt and setting aside savings, get rid of all your debt first.
5. Try living off one salary and banking the rest
“If you’re a dual-income couple, living off one salary and saving the other is one of the hardest but fastest ways to accelerate your savings – if you can do it, you should be able to cover your deposit in just one year! You may want to consider opening a new savings account that each person can deposit half their salary into, so you can keep individual accounts and monitor your own spending.”
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