Purchasing property is an exciting experience. The decision to take the plunge to purchase your first home is brave but nevertheless rewarding. Such an experience is not without headache or stress. The same can be said for purchases of investment properties or your ideal home. Buyers need to be mindful of their required level of involvement in the search, financing, conveyancing and settlement processes. Here we try to shed some light on the buying process, common mistakes and pitfalls and briefly list some relevant things to consider.
Searching the property
When searching for a property, do your research and take your time. First time home buyers excited about the prospect of owning a home can make rushed offers without the required research and planning. Those who attend auctions may also fall into the trap of bidding emotionally without adequate preparation and knowledge about the market; a mistake even the most experienced and astute property investor can make. All buyers should research the suburb in which they wish to purchase and invest in suburb sales reports. Also relevant are the local council’s planning requirements, zoning and restrictions. This is especially important if you wish to develop, subdivide or renovate a building. All properties are different and some may be subject to more onerous planning requirements than others. An example is the heritage overlay. Simply wanting to paint a front fence of a property affected by a heritage overlay may require you to apply for planning permission (timely and costly).
Be well advised
Consider using a buyer’s advocate. Buyer’s advocates can assist in researching, locating and negotiating an ideal property based on a criteria you provide. Avoiding rookie mistakes will require dedication and drive. Some first time buyers rush to purchase due to a government grant expiring or for whatever reason. Irrespective of the government incentives, no one can compensate you if you pay way above market value.
Appoint a conveyancing lawyer and speak to an accountant prior to purchase or sale. A lawyer can assist in reviewing any contractual documents for you and answer questions about zoning, encumbrances and restrictions. An accountant can assist in tax planning. Capital gains tax (CGT) is not something you wish to incur when selling your primary residence; however, under certain circumstances owners can be liable to CGT if he or she did not move in immediately after settlement.
Pre-approval is a must. Before you even commence the hunt, you should obtain pre-approval from a lender. This aids in budgeting and gives buyers’ insight into the suburbs and types of property you can afford. When deciding on the specifics of the loan think about whether you would prefer fixed, variable, a hybrid of both and any special products available with the loan. Fixed interest rate products provide certainty. They do however lock you in and should you wish to sell the property prior to the end of term break fees are incurred. Read more below about break fees.
One of the biggest inconveniences and expenses relate to delayed settlements. Delayed settlements occur when your bank is not ready to advance the borrowed moneys, the vendor or their bank is not ready to settle or the purchaser does not have enough to cover any shortfall amount owing to the vendor. More recently we have noticed that with off the plan purchases, banks tend to undervalue the property at the time of settlement. The implication of this is that buyers will not be able to borrow as much as originally intended. If you do not have the cash through your own means or with the help of friends and family you are at risk of delayed settlement and potentially defaulting.
Break fees and early termination fees
Many home loans used to have early termination fees. From 1 July 2011 the National Consumer Credit Protection Regulations (the Regulations) 2010 prohibit early termination fees, subject to some exceptions. Any provision of a credit contract that seeks to impose a prohibited termination fee is void to the extent that it does so. The prohibition also extends to ‘deferred establishment fees’. Deferred establishment fees are fees charged throughout the term of the loan which would have otherwise been charged at the commencement of the loan.
Break fees – fixed rate loans
Break fees can still be charged under the Regulations. Break fees may apply to borrowers who terminate a fixed rate loan before the fixed rate term. The borrower is then charged a break fee to recover the lender’s economic loss. The break fee is usually calculated by reference to the difference between the fixed interest rate and the prevailing interest rate (variable at retail or wholesale rate) at the date of termination over the remaining term for which the interest rate is fixed.
A break fee can be negated if found to be unconscionable or unfair. The test for unconscionability is complex. An example of lender’s losses which are unconscionable are: loss of profits that would have otherwise been received if the loan proceeded to the expected term, marketing costs and costs associated with obtaining new customers and costs associated with developing new products. The test for unfairness is also complex. The Regulations state to the effect that an unfair term is one which: (1) causes significant imbalance to a parties’ rights and obligations; (2) is not reasonably necessary to protect the interests of the advantaged party; (3) it would cause detriment to a party if the term were applied; and (4) how clear the term was drafted (i.e. expressed in reasonably plain English, among other things).
Buyer beware to all purchasers of property. Once the contract is signed, the purchaser has bought the property in its current state of repair (or disrepair). Discovering that the property was not as good as you originally perceived does not give you a grounds to compel the vendor to attend to every defect you discover. Of course if the property was falsely advertised to be something that it is not, there might be grounds to claim compensation after settlement. All buyers should thoroughly inspect the property to ensure all appliances are in working condition and that they are satisfied with the property in its current form. Where possible engage in a building and pests inspector.
When settling a purchase, sometimes vendors fail to remove all their personal belongings off of the property. This can be quite frustrating and inconvenient to the purchaser depending on how much is left behind. You will be required to settle the property regardless but contractually the vendor is required to remove those items even after settlement.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan
Khiem Lam is a solicitor at Provey Legal since 2010. Provey Legal is a boutique law firm practicing in areas of property law and conveyancing. It was established in 2009 with a focus on technology and convenience to its clients. Provey's clients include property developers, owners' corporations, builders and purchasers and vendors of real estate. Provey Conveyancing advises private clients in purchases and sales of residential real estate. Provey's presence in the industry over the years has allowed them to accumulate a wealth of knowledge and expertise in the area.