The Rudd government's announcement last October of the boosting of First Home Owner Grants by $1.5bn has no doubt given hopeful first homebuyers across the country a reason to fast-track their journey into property ownership.
In the week after the announcement, mortgage broking company Mortgage Choice recorded a huge surge in first-time buyer enquiries. In fact, first homebuyer enquiry forms lodged through its website jumped a huge 577%.
Traffic on its 'Buying First Home' section alone increased 213%.
If you're one of the many first homebuyers looking to take advantage of the time-limited $14,000 or $21,000 First Home Owner Grant boosts, it’s vital that you seek the best possible professional advice you can to ensure your decisions put you in the best position for your life as a new property owner.
The internet is an invaluable source of information for first-time buyers, but should be complemented with the information that only the right advisors can give. Professionals such as mortgage brokers, buyer’s agents and building inspectors are your key to buying the right property, at the right price, with the right home loan.
"First homebuyers have many questions so it makes sense to seek face-to-face advice from credible and reliable sources in the lending industry, such as a mortgage-brokers, franchisees or local banks, and particularly lenders who specialise in the first homebuyers market as they are the best equipped to understand your individual needs," explains RAMS CEO, Melos Sulicich.
Some of the advice you seek will come at a price and some will be free. For example, a growing number of mortgage brokers are now charging their clients a set fee whether they proceed with the transaction or not. Whatever the cost to you as the first homebuyer, it pays to take some time out to select the right advisors to help you achieve your short- and long-term goals as a property owner.
You can find an advisor for each step of your home-buying journey. For the initial stages of organising your budget and finance there are accountants, financial advisors, mortgage brokers and lenders. For the selection process of your property, there are real estate agents by the dozen and property buyers to help you secure the best deal.
After you've found your dream home or investment property, it is your job to contact a conveyancer (or solicitor), a strata inspector, and a building and pest inspector to confirm that the contract of sale and the building structure are both sound for purchase.
If this all sounds like too much of a juggling act, you’re not alone. Thousands of first-time buyers go through the same process each year, and this is why it is essential to know how to find good advice, so you can have a long and happy time span living in – or being the landlord of – your purchased property.
Unstable economic environment demands crucial advice
The recent interest rate reductions have provided a welcome relief for borrowers, and helped restore hope for many first homebuyers struggling with the affordability blues.
While these positives may encourage first homebuyers to flock into the market, a combination of unstable global economic factors, high living costs and growing unemployment tells us that there has never been a more crucial time to increase your knowledge about buying property.
Kristy Sheppard, senior corporate affairs manager, Mortgage Choice, says knowledge and the right advice are the only way to overcome the challenges presented to all homebuyers in the current climate.
"Regardless of previous experience in the property market, everyone has to educate themselves so that they understand the current scenario, so they make an informed decision that is suitable to their own situation and goals for the future," says Sheppard.
"Knowledge and preparation are the keys to entering the mortgage and property markets as best you can in light of your financial position, needs and desires."
Vetting your advisors
Many borrowers say that the best advisors bend over backwards to make your experience as a first homebuyer as easy and educational as possible.
Trusted sources of advice are usually recommended by family or friends. Word-of-mouth recommendations are the best and cheapest advertising tool for any business, since your 'sources' cannot damage their reputations by jeopardising their status as good advisors.
If you're a first homebuyer beginning your search for an advisor from scratch, make sure they can answer the following questions:
What are your qualifications and are you registered with an industry body that has industry standard rules and regulations?
What cover do you offer me if you make the wrong advice on my behalf? (This is particularly relevant in the case of legal procedures.)
3. Your business
How long have you been operating, what kind of clients do you see and can I speak to any for testimonials?
4. My service
Who will look after my business most of the time and what are their specific qualifications?
Do you have the time to answer each of my queries, no matter how small? How long will it take to complete the advice or service I have asked for?
6. Value for money
What is included in your service for the fee I would pay? Will you charge me for time spent on phone calls and e-mails when either communicating with me or about my purchasing a property?
7. Your experience as a homebuyer
Do you own any investment or owner-occupied residential properties? How can your experience help me as a first homebuyer?
8. First homebuyers
Do you have adequate knowledge about the first homebuyer concessions and grants available to me? Do you know how to apply for these, or who I should be speaking to so I can get this sorted?
(For a full list of questions to ask a mortgage broker, see page 63.)
If your advisor cannot answer most of the above questions, this could be the first sign that they may not provide the service you need as a first homebuyer, says Jennifer Nielsen, CEO, Loan Market Group.
"If your broker, for instance, can't or won't answer these questions immediately, move on. It's also good to check your advisors' web pages. If the broker or the company they are attached to doesn't have good up-todate information available for first homebuyers, just move on," says Nielsen.
"If, when you meet the broker they can't readily articulate both first homebuyer grants and concession entitlements and the variety of home loan options for you, or they aren’t prepared to do both the paperwork for you and negotiate your home loan for you, definitely show them the door!"
If your mortgage broker is seeking a fee for giving you advice about your home loan, this can also be a good sign to move on to another company. Traditionally mortgage brokers do not charge for their services as they are paid commission by the lender of your choice.
There is also no obligation to take any of the advice given to you by paid or unpaid professionals, nor is there an obligation to proceed with their services after your initial consultation.
"If any property or mortgage professional obligates you to take up their service in return for their advice, you are consulting the wrong professional!" Sheppard says.
Do your part
Begin your educational journey by taking advantage of the free first homebuyer advice in the marketplace. If you're low on cash and can only afford to pay for the most essential items, the internet, as well as brochures, magazines and books can be very handy for filling in the gaps.
"Apart from visiting a reputable mortgage broker, start taking note of property- and mortgage-related information sources," says Sheppard.
"Places to target include the relevant sections in newspapers, magazines aimed at homebuyers, e-mail newsletters sent out by mortgage brokers, consumer associations and lenders, comprehensive and detailed internet sites that are updated regularly, plus friends and family," she adds.
Websites such as www.yourmortgage.com.au offer abundant information for first homebuyers, ranging from choosing the right loan to managing your mortgage and paying it off fast.
Another website, run by RAMS (www.ownyourfirsthome.com.au), also offers a comprehensive source for first homebuyers, featuring a seven-step process for buying your first home.
Government websites in your state can also be great for keeping up to date with stamp duty concessions and First Home Owner Grant information.
Choosing your team of experts
Your accountant can help you prepare a full cash-flow analysis, detailing your current and forecast expenses versus your income.
This also gives you a realistic idea of just how much you can afford in mortgage repayments each month, says Sheppard."Usually, there's a small cost involved with visiting an accountant and you need to make sure they have the knowledge you need to give you the right advice," she explains.
To do this, it's best to ensure your accountant has experience dealing with first homebuyers and is prepared to answer every question you have regarding your finances.
Researching them online prior to your first meeting can be a good way to discover more about the way they run their business and treat their clients.
Make sure your accountant is a member of the Australian Society of Certified Practising Accountants (ASCPA) or the Institute of Chartered Accountants (ICAA) and updates through professional development.
If they're part of a peak Australian body, it usually means that they have studied to become an accountant at university or college and, in addition, have completed a postgraduate professional study program.
If they are not registered with a professional body, they have no professional incentive to fulfil their obligation to you – and that is your risk.
2. Financial advisor
The CPA Australia website – responsible for courses and information regarding Certified Practising Accountants – says that a financial advisor can also help you prepare and plan for your future as a homeowner. Your advisor should discuss your financial background and your current position with you, and help you meet your financial goals.
When choosing a financial advisor, it’s good to ask for their credentials before enlisting their services. They should also be licensed with the Australian Securities & Investments Commission (ASIC). This gives you particular rights as the client, so that you and your money are protected.
"Personal advice must be given to you in a written document called a statement of advice, an SOA. The SOA must explain the basis for that advice, eg, how your objectives, financial situation and needs have been taken into account," explains the Fido website.
The costs of an accountant and financial advisor vary from company to company and are usually a fee-for-service arrangement. This means that the fees you are charged will depend on the level of experience your advisor has and how much time you spend with them. Some accountants also calculate a fixed fee before proceeding with services. A single session with an accountant or a financial advisor is likely to cost between $100 and $300. Some accountants and financial advisors may provide the first consultation free.
3. Mortgage broker/lender
The decision to deal direct with your lender rather than seeking advice from a mortgage broker is a personal choice that every homebuyer must make before committing to their search for the right home loan.
While your lender can offer you a range of products from their home loan base, they cannot proffer a selection of different lenders’ products, the way a mortgage broker can.
"The difference between taking one loan compared to another can often be tens of thousands of dollars – either in addition or as a saving – as well as crucial time and effort," says Sheppard. "That's why visiting a reputable mortgage broker saves a borrower the time, effort and hassle of researching a number of lenders one by one. Comparing a wide range of loans from different lenders at once is a service one lender simply cannot provide."
A mortgage broker acts as an intermediary on your behalf between you and your lender, and their panel usually has between five and 40 different lenders. Be careful here, though. The bigger the panel does not necessarily mean the better the mortgage broker.
Your mortgage broker assesses your borrowing capacity and your suitability against each of these lenders' criteria and come back to you with two to five home loan solutions to discuss. This is your chance to ask all the questions you have about the mortgage industry and the home loan application process.
Mortgage brokers are not legally bound to be a member of any regulatory body like a financial advisor is. However, many brokers are choosing to become accredited with industry bodies such as the Finance Brokers Association of Australia (FBAA) or the Mortgage and Finance Association of Australia (MFAA).
Each of these associations works hard to make sure that any broker accredited with them complies with its Code of Practice. This ensures that mortgage brokers have their clients’ best interests at heart when arranging a home loan.
"A reputable mortgage broker doesn’t charge customers for this service so there is really no reason not to visit one. Look for a well-established broker with compulsory MFAA membership for his or her network of loan consultants," says Sheppard.
Mortgage brokers are paid upfront and ongoing commissions by the lender you choose to take a home loan with. These commissions vary greatly from lender to lender and it is essential that your broker discloses their commission schedule to you before advising on any particular lender. It’s not usual for a mortgage broker to recommend one lender over another because their commission is higher, but borrowers have been caught out with the wrong home loan before because of this.
It's advisable to get advice from at least three different mortgage brokers before settling on one, says Sulicich.
"Find out how long they have been in the business, whether they are part of a recognised industry body such as the MFAA and whether they have any good customer stories to share. Have a good conversation with them and make sure they are someone you feel comfortable dealing with," Sulicich explains.
4. Real estate agent
Real estate agents can provide lots of statistical and historical advice about the properties in your area of interest. A great way to take advantage of their services, without having to pay, is to sign up for their e-mail alerts for your suburb of interest.
It's a good idea to check in with a few different real estate agents in the area every week or two for insider updates on properties which may not even be listed for sale yet. That way they know you are keen and this may put you ahead of the competition.
"Real estate buyer's agents often hear about properties when they’re about to go on the market, which means first homebuyers can sometimes be 'first in, best dressed' if they use one. Or a buyer's agent can sometimes negotiate the customer a better price for the property and deal with the purchase negotiations. However, you usually pay a straight fee for service, or a percentage of the property price," says Sheppard.
5. Buyers agent
Buyer’s agents are an alternative to real estate agents. A buyer's agent works exclusively for the homebuyer to purchase a property whether it’s residential or commercial.
They should not be receiving any commissions from developers or other parties to act on your behalf for the purchase of a home.
"Your buyer's agent should be giving you independent advice. This means that there should be no vested interest in the property they are recommending, such as what a seller’s agent does for their vendor," explains Rich Harvey, managing director of Propertybuyer.
There is a fee charged, usually 1–2.5% of the final negotiated price – and for this, your buyer’s agent searches out a property that fits the description you’ve given them, evaluates it and negotiates the best price. They draw on property reports and previous sales history – which may cost you around $500 to get your hands on – to find you the best property at the best price.
This service allows you to make an informed decision on the home you are purchasing and usually cuts down the time it takes you to find the place of your dreams. In fact, Harvey says in most cases it takes just 30 days to find the right property for an investor and just 60 days for an owner-occupier, from research to finding it.
"Our research shows that the average first homebuyer takes one to two years to look for a home. But if they want to take advantage of the new boost to the FHOG they need to get their skates on to get into the market before 30 June," he advises.
Harvey says many people make poor decisions based on emotion – ending up with classic 'buyer's remorse' or paying over market value, he adds.
"In the current volatile financial market conditions, it’s critical that buyers get totally independent advice on a property’s true value," states Harvey.
Your buyer's agent should be a recognised member of the Real Estate Institute in your state and the Real Estate Buyers Agents Association of Australia. For details about whether your buyer’s agent is a recognised member of either of these industry bodies, go to the Office of Fair Trading website for your state.
6. Conveyancer or solicitor
When it comes to arranging your legal documents and representation for your first home, it’s highly recommended that you seek professional advice from a conveyancer or a solicitor.
The main difference between a conveyancer and a solicitor is the cost and their level of advice.
A conveyancer's business is strictly limited to property.
They're qualified to prepare documents for the registration and transfer of your property, give legal advice on contracts and explain many other questions you might have about the legal process of buying or selling a home.
All conveyancers in NSW must be licensed with the Office of Fair Trading. They must also have ‘professional indemnity insurance’ to protect you as the purchaser in the event that they make a mistake or act negligently. Their fees usually range from between $1,300 and $1,800.
A solicitor offers a range of legal advice not restricted to property and charges fees based on the property price and type of dwelling, as well as the level of conveyancing work required for your purchase. This can vary up to around $2,500 for the average purchase.
Solicitors must also have professional indemnity insurance to protect you as their client.
It's imperative you get a few different quotes from conveyancers or solicitors, and choose a legal representative with whom you feel 100% comfortable. The best way to do this is to get recommendations from family and friends. You’d be surprised how many questions you find you have regarding the legalities of your contract and settlement, so finding a representative who is easy to contact and deal with is vital.
Online conveyancing packages are available at a cheaper rate, but are only advised for homebuyers and investors who have years of experience buying and selling homes. There is also no insurance cover if something goes wrong.
7. Building inspector
There are three vital inspections you should seek when buying your property, depending on the type of dwelling you’re after. It is essential that these checks are conducted before you sign and exchange your contracts of sale, so any nasty surprises can be sorted out or negotiated into the final price.
A building and pest inspection is advisable for those buying a house, and a strata report inspection is recommended for those opting to buy into a strata title, such as a unit or small townhouse.
A building inspection is likely to cost you around $550, but it’s worth every cent to put your mind at ease about the quality of the property you’re buying. A strata report inspection will cost you around $200.
The building inspector conducts an internal and external evaluation of the property, identifying any areas of structural concern in a detailed report. The report also includes possible repair costs if need be, which can help you negotiate your sale price to factor in any work you might need to complete urgently.
It's a good idea to be on-site when the inspection is taking place so you get to know your property before buying it, and ask your inspector to read through the final report with you to discuss any concerns you – or they – might have.
Your pest inspector will also conduct an internal and external assessment of your dwelling and usually factors in any trees within a 70m radius of your property to ensure the risk of any termite, borer, rot or other destructive timber pests is identified.
Significant pest infestation can have a detrimental effect on your property without you knowing it.
Timber-eating pests can begin having a structural affect on your property within six months of infestation.
However, a pest inspector will identify any issues, no matter how small, and advise on the best course of action to prevent infestation occurring again.
Strata report inspection
A strata report inspection researches the official paperwork for your building held by the strata company or owner corporation. It also reveals any repairs and improvement work conducted on your strata building in the past.
It is important to ask the strata report inspector to read through the report with you to highlight any items worthy of attention.
This is particularly vital if the lot owners in the building have voted a special levy in. You don’t want to cop a $10,000 bill to fix the roof membrane as soon as you settle on your property.
Are the so-called experts worth it?
It's completely up to you to decide whether paying for professional advice is worth the fee you’re quoted. The bill can tally up to many thousands of dollars if you’re seeking a complete range of professional advice and it pays to have a good hard think about it.
If you're down on cash for professional advice, prioritise your spending and ensure you cover the most essential checks on your property.
For example, a building and pest inspection can set you back $550 or more, but it could identify nasty problems likely to cost you much more than the price of the two professional reports.
Archicentre reports that in Victoria, one in four homes that are 25 years or older inspected by their professionals suffers from stump problems. In Queensland, this number increases to one in two of all inspections undertaken.
"People think they are buying quality heritage housing, but in many cases an older property has thousands of dollars of repairs required that are not allowed for in the purchase price if the buyer has not inspected the property carefully or had a professional inspection carried out that covers damp, illegal construction, foundations, stumps, wiring and plumbing," explains Hallett.
"The cost of restumping can add $10,000 to a property. That is why a property inspection is so important before purchasing as you can be made aware of likely costs to repair the property."
Once you decide which services you’re willing to pay for, the best way to make sure they’re worth the expense is to get at least three different quotes for each.
Ring each advisor and talk to them about their fees and the services included, and choose the company you believe will provide the best service at a reasonable price from the three quoted.
"Similar to buying any product or using any service, you get what you pay for. Experts are better qualified to ensure you obtain the best product that suits your current situation," says Sulicich.
"It all comes down to personal preference and – of course – what you’re comfortable with."