Tax concessions put brakes on participation – but planning key for first time buyers
Media release - 19th November, 2013
Fast-track incentives an overlooked cause of reduced FHB activity
- Historic grants and stamp duty concessions are still contributing to reduced first home buyer numbers
- First time buyers must be prepared to win the battle with investors by seeking pre-approvals that can slash home loan approvals significantly
- Home loan approvals can take 8 to 12 days – whereas it can be 2 to 3 days for investors
- A deposit of 20 percent or more can slash up to five days from the typical approval process
Angus Raine, Executive Chairman and CEO of Raine & Horne, says decisions by Australian governments to reinforce grants and stamp duty concessions during the GFC have been overlooked as a cause of subdued first home buyer participation in real estate markets this Spring.
“Rising prices, dominant investors and a shortage of properties have contributed to fewer first home buyers, however we shouldn’t underestimate the impact the GFC-driven tax breaks a few years back had in flushing out many first home buyers earlier than normal,” says Mr Raine.
“In NSW for example, the combination of the $15,000 first home owners boost and the stamp duty break for established homes valued under $600,000, effectively saved first time buyers almost $40,000 on the cost of buying a property, and in the process, helped to fast-track the ownership aspirations of many by as much as five years.
“While I’m not being critical of these initiatives, I’m simply stating that these benefits have also possibly influenced first home buyer numbers in more recent times.”
Matthew Brown, NSW State Manager for Raine & Horne’s financial services division, Your Broker, urges that with some pre-planning, first-time buyers can still compete with investors for entry-level homes.
“Investors do have an advantage as many have the experience and the financial capacity to push through a fast contract exchange in a few days, where it often takes first time buyers 8 to 12 days to get to the point of exchanging contracts,” says Mr Brown, who adds that Your Broker guarantees loan approvals in 5 days, where all required documentation is provided by the borrower.
“To compete, first home buyers need to be confident that they can make an offer for a home as soon as possible to compete with investors, and this is where a fast approval process, facilitated by a mortgage broker, can be helpful.”
The basis of a fast approval, according to Mr Brown, is a pre-approved home loan.
“To obtain a pre-approval, buyers are asked to submit loan documentation such as employment history, wages and salary information, assets, and liabilities such as credit card debts, while a lender will also usually do some credit checking,” says Mr Brown.
“A pre-approval gives you some confidence about how much a lender is willing to lend, which is useful information to have when making an offer on a home.”
While a pre-approval doesn’t guarantee a successful, or rapid, approval, Mr Brown asserts that it demonstrates to real estate agents that a first time buyer is committed and serious.
Similarly, a clean credit history can help fast-track the mortgage approval process for first home buyers.
“Lenders will want to determine whether you are financially sound before approving a home loan, and as part of the service at Your Broker, we undertake a financial health check that evaluates a first time borrower’s credit history and risk,” says Mr Brown.
Having a larger deposit is another way to fast-track the approval process by as many as five days, according to Mr Brown.
“Where a borrower fronts up to a lender with a deposit that is less than 20 percent of the value of the property, they will be forced to pay Lenders Mortgage Insurance (LMI), which covers the lender in the situation where they default,” says Mr Brown.
“Having a bigger deposit reduces the lender’s risk but also speeds up the approval process, as LMI approval is not required – LMI approval can add up to five days to the overall mortgage approval process.”
For further media information contact:
Angus Raine, Executive Chairman and CEO, Raine & Horne on 0409 920 697
Matthew Brown, NSW State Manager, Your Broker on 0405 448 925
Andrew Harrington, National Marketing & Communications Coordinator on 02 9258 5400