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Dear Subscribers,

Welcome to our June Quarter E-Newsletter - First Home Owners.

In this issue we discuss some of the key issues for home owners when purchasing a property for the first time. This is a market at the moment that is quite lively and has knock-on effects for business across the board. Perhaps closer to home, we all have kids or close relatives that are eying-off the Government grants available, and with interest rates at an all time low, for many it is an attractive time to buy.

Government Impetus

The Rudd Government recently announced an extension of the successful First Home Owner’s Boost (FHOB) for an extra six months in this year's Budget. Coupled with the original grant arrangements, this initiative has grown in popularity and has literally helped thousands of first home owners buy their first house. The local government areas of Wyong and Gosford are reportedly in the top 10 of areas where the grant has been taken up.

Under the pre-budget arrangements, first home owners received $14,000 in total from the grants for the purchase of established homes and $21,000 for the purchase of new ones. This will be extended until 30th September 2009. After this time and until 31 December, first home owners will receive a total of $10,500 for those who purchase established homes and $14,000 for a newly constructed home. Beyond 2009, the grants will fall back to the traditional amount in total of $7,000 for established homes and $14,000 for new homes. Put this with the various State Government exemptions on stamp duty for first home buyers, and it is easy to see why it has been taken up by so many first home buyers.

Implications

For many first home buyers, one of the key challenges has been finding a property at the right price. With the large numbers of Gen Y’s in the market, many areas simply have not had the stock between the $250- $350K market to sell. This correspondingly has caused a level of ‘bidding war’ for properties.

One other implication is that many financial institutions are raising the level of equity that the first home owners must have before a loan will be approved, as some have sought to rely on the grants to satisfy their deposit. Some are also insisting on evidence of a regular savings record, apart from the usual employment requirements, as evidence of capacity to pay the mortgage in the future. Financial institutions are obviously conscious of not creating a ‘sub-prime’ crisis in the first home owners end of the market. Some first buyers are looking to use the grant money as their equity, but access to this for the deposit at time of exchange is not possible, because it is only paid on settlement. All the more reason to have a decent deposit saved. There may well be a growth in deposit bonds to quench the appetite of those looking to enter the market.

Due Diligence

For first time buyers looking to establish a home they need to avoid losing sight of the traditional checks and balances that served their parents well in the generation before, in particular:

• it is prudent to have as much equity as possible in the house and this means saving a decent

deposit;

• not over committing themselves, because they need to factor in that if interest rates go up,

they can meet their obligations; and

• do the building and pest checks on the home they are purchasing and not ignore these in the

haste to snap up a house because of the pressure of other buyers.

Conclusion

The Government assistance available to facilitate a new generation of homeowners is definitely attractive and combined with a low interest rate environment, presents opportunities for first home buyers. However, at the same time, they should not forget the financial responsibilities that home ownership brings and the need to do their sums to be able to ride through the bad as well as the good.

Hill and Co Lawyers is available to assist first home owners buy their first home. Click here to see our competitive conveyancing package.

More information on the NSW Government assistance available can also be obtained by clicking here.

PETER HILL