First home buyers urged to be realistic
5 March 2005
This week's Reserve Bank announcement about
an interest rate increase is a timely reminder for first home
buyers not to over extend themselves financially when buying a
new home, says Real Estate Institute (REI) of New South Wales
president Rowen Kelly.
Kelly says after such a long time without a
rate rise, home buyers may have needed a reminder than when they
take out a loan they need to budget for rate changes.
He says the favourable market conditions make
it tempting for people to borrow more than they can afford to
repay but he urged buyers to stick to a realistic price bracket
and not over extend on a loan.
"It is a great time to be a first home buyer
- the market is slow, there are great State and Federal
government incentives and interest rates are relatively low,"
Kelly says. "It is easy to see how people can get caught in the
excitement and emotion of the moment and buy a house beyond
their financial limits."
According to Kelly, budgeting and the ability
to meet home loan commitments should be the first priority of
homebuyers in deciding what type of property they will buy.
"This includes making a checklist of
financial considerations and household budgets and working out
exactly how much you can comfortably afford to repay - including
factoring in changes to interest rates," Kelly says. "Interest
rates will fluctuate during the life of any home loan and buyers
should always be prepared for change."
According to Kelly, good lending institutions
should only lend homebuyers an amount they could afford to
repay.
"At a time when banks are offering home loans
at historically low rates, it would be unfortunate if people
slip through the net and commit themselves to mortgages that are
beyond their means," Kelly says.
While home buyers and the media enjoy
discussing the possibility of interest rates rises, Kelly says
in reality a rate change has little impact on participation in
the property market.
"Every month there is intense speculation
before the announcement about whether rates will rise or fall,"
Kelly says. "In the meantime people keep buying homes and taking
out home loans."
Kelly concedes some buyers have put off
buying a property until an announcement about rate rises but he
encouraged potential home buyers not to defer home buying plans
while they waited for future rate increases
"While interest rates have the potential to change from month to
month, home ownership is a life-long prospect and home buyers
need to take a long term view of home ownership," Kelly says.
He urged first time buyers to take advantage
of the current slow market and not let rate speculation delay
their buying decisions.
"REI research shows that the sooner a young
family steps on the ladder of home ownership, the more likely it
is that they will have a debt free home on retirement," Kelly
says. "Once house prices start to increase again it may be some
time before conditions are so good for first time buyers."
