A survey by home lender ME Bank revealed disconcerting results about first home buyers' property buying literacy.
While roughly half of first home buyer respondents claimed to have a clear understanding of the buying process, 61% failed the basic property buying literacy quiz included in the survey.
Most first home buyers did not understand lenders' mortgage insurance (LMI) as 88% were unaware that it covers lenders and not borrowers. LMI is usually paid for by borrowers who borrow more than 80% of their property value.
First home buyers seem to not have a grasp on auctions as well, as 85% said they are not informed that there is no cooling off period and that they have to pay the deposit immediately in public sales.
It is also alarming that around two in three buyers are not acquainted with the conveyance process – around 38% even said that conveyancing is the process of inspecting the property and checking boundaries.
For ME head of home loans Patrick Nolan, a poor understanding on the buying process could cost first home buyers and put them at risk.
“It’s difficult enough for those trying to get their foot in the door to save up a deposit and decide where to buy. A lack of necessary property buying knowledge is sure to increase the risk of young Aussies being caught out with unexpected costs, adding to the existing stress,” Nolan stressed.
Nolan urged first-timers, even those who are already owner occupiers and investors, to study the market before taking the plunge. Aside from doing independent research online, and utilizing online calculators, buyers can the option to consult with experts to make sure that they are in-the-know about the market.
“Financial literacy is a valuable asset and one of the biggest money savers over time, especially when it comes to buying what is likely to be the biggest investment of your life. Some Aussies fail to educate themselves because they find finances dull and complex and think they know best, while others find working with numbers difficult and put their head in the sand," Nolan explained.