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The Effect That Banks Have On First Home Buyers

Author: Elliott Cirkovic

Published date: 2018/04

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With 12,000 people moving into Victoria every month, the demand for building and borrowing is at a record high. And it’s the big banks that play a key role in the how, what and when of financing your first home.

I have been involved in Residential Construction since I moved from Perth to Melbourne in June 2015. The big difference between the two states is the high demand for building in both the inner and outer suburbs of Melbourne, and this shows no signs of slowing anytime soon. 

Initially, I worked as a New Homes Consultant where I assisted first home buyers and investors with house & land packages. This was both a rewarding and an eye-opening for someone in their early 20s!

Now stepping in to Residential Recruitment, I’m lucky to have my finger directly on the pulse of the industry. I’m in a prime position to witness the sheer volume of how busy the market is, and the huge demand for new construction particularly in Melbourne’s ‘growth suburbs’.

What I have learnt during this experience is that if you are presented with the opportunity to get into the property market, DO IT! But when it comes to navigating the big. bad world of bank finance, this can be easier said than done.

Though I do not claim to be an expert on the topic, I have seen first-hand eager first home buyers who thought they were in an excellent position to borrow and have been disappointed with their outcome. To help, I have outlined some important information to be aware of when you are approaching banks to get the money you need to finance that property dream.

Important information first home buyers need to know

Avoid large car & credit card loans

So many times, I’ve seen first home buyers with large loans for cars or high limit credit cards that has seriously affected their ability to borrow money from the bank. The higher the limits, the less capacity you will have to meet your loan commitments in the eyes of the banks.  For example: A $20,000 or $25,000 credit card limit may reduce the amount you can borrow by as much as $70,000 – $80,000!

Avoid missing payments (rent, credit, phone bills, etc.)

This sounds particularly obvious, however it happens a lot more than you think, and has consequences when you submit loan applications.

Stay in your job, or at least the same industry

This is a topic that a lot of first home buyers forget when going for a loan. Your employment history will be scrutinised by the bank, and people who have jumped around will be considered high-risk compared to people with who have 3-5 years in the same job. Just starting a new job also isn’t looked upon favourably by banks due to probationary periods (something that comes up in recruitment!).

Avoid ‘shopping’ around for a good deal

This sounds like something you should do, but it can damage your credit and ‘financial character’. Banks are black and white, they see the numbers on the screen and to them it looks like you are getting denied the loans because you’ve been looking for the best deal. A good suggestion is to find a reputable finance broker to do the shopping on your behalf.

Where to start if you think you’re ready

If you think you’re ready, whether it be individually or with a partner, this is a good place to start:

  1. Be realistic – you need to be able to budget efficiently and forecast not only your present outgoing / income but your future as well.
  2. Prepare to sacrifice – please, please, please don’t expect your first home to be in Richmond or Toorak. If you are serious about the property market, you need to learn to broaden your search radius to affordable and realistic locations. Growth areas of Melbourne are excellent as the potential to profit from the property is very high. Look at it for the long-term gain.
  3. Find a reliable finance broker –  this can be the difference between having a very stressful (trust me, it can be) or relatively stress-free experience.
  4. Keep an open mind – once you know what you can afford, explore a full range of options in regard to what area and what type of house you want.
  5. If you’re building, don’t just choose a home…choose a community – the estate you choose to build in has a large impact on how profitable your property will be. Look at the amenities like shops, train / bus stations, recreational facilities, parks, etc.
  6. Display Homes – taking the time to look at different display homes will give you an idea of the style, size and finish of certain builders and will help develop your personal perferences.
  7. The builder – choosing a reliable builder is essential. A mistake many first home buyers make is thinking saving money up front will help them in the long run. However, if you find a builder that is $30,000 cheaper than another for a similar size build or even similar finishes, over 30 years you will save just under $20 per week. That figure looks less intimidating over the life of the loan, and while saving $30,000 up front may seem appealing, rest assured it will come out of the quality of the finishes or the process the builder has. Think long term and do your research on builders.

 

Elliott Cirkovic is a Residential Recruitment expert who is passionate about the construction & property industry. You can connect with Elliott on LinkedIn here.