First Home Buyers Beware!

While some experts are saying now is a good time for first home buyers to enter the housing market is it really such a wise move?

While interest rates are at 30 year lows and the housing market is more or less flat why should first home buyers think carefully?

1. Interest rates are likely to increase and expecting variable rates to remain in the 5% mark is unrealistic. Historically the Cash rate average for the last 10 years is 5.43% well above the current rates. This is also just the Cash Rate it does not include the Lenders margin. This Lenders margin has increase as competition in the Australian Lending market decreases, just 2 years ago the margin was less than 1.75% it’s now well above that and likely to increase as the cost of funds for all Lenders increases. Expect to pay more sooner rather than later.
2. Demand in the sub $500K housing market is being artificially inflated due to the low interest rates, high first home owner’s grants and reduced stamp duty offers.
3. Unemployment is yet to peek and we can expect to see more major problems occurring globally (the GM Chapter 11 can only be a few weeks away).
4. Secondary debt interest rates are increasing. The interest rates on credit cards has continued to increase during 2009. The Lenders are passing on the higher costs of unsecured lending to their customers. This means more income will be spent on repaying secondary debt. This also means that the option of using credit cards or personal loans to renovate a property will be more costly.
5. Lenders no longer offer sub prime loans in Australia, or at interest rates that are so high no one can afford them. Other products such as the 100% or no deposit loans will simply disappear as the cost to fund them makes them unsellable. In short it will be harder for consumers to get access to cheap home loans. None of the big four banks has a loan in the top 10 cheapest loan list.

So what should you do if you are a first home buyer in this market?
•Save more and borrower less (you will pay less in Mortgage Insurance Fees and be a more attractive customer for the Lender)
•Repay secondary debts (repay and closed the credit cards and personal loans)
•Keep a clean credit history.