Eight Things I Learned While Buying My First Apartment
This week, the Sydney Morning Herald reported that first home buying has fallen to a new low. This is not surprising news to anyone who's been on the market.
This week, the Sydney Morning Herald reported that the proportion of first home buyers has fallen to a new low. This is hardly surprising news to anyone who has been house hunting recently.
When I was looking for my first home last year, I definitely felt squeezed out by rich investors, rich parents, rich retirees — and the abandonment of first homer buyer concessions by the NSW government. I wound up taking the plunge and getting a mortgage for a cosy studio apartment in inner Sydney, and during my nine month search I learned a lot of useful things that I think are worth sharing with anyone else considering buying their first home
#1. To afford something decent, you’ll need income of $100K a year
This makes it almost impossible for a lot of singles, but somewhat attainable if you and your partner both have good, stable jobs (and can stand the thought of living together).
Here’s how I worked it out: as of September 2013, the median Sydney apartment cost $515,000 (nationally it was less at $460,000, but still over $560,000 if you wanted a proper house.)
So at current interest rates, and with a 10% deposit, that Sydney apartment is going to cost you about $2417 a month. To afford that without falling into housing stress (where you spend more than 30% of your income on housing), you’ll need a household income of about $97,000 per year.
Given figures like that, it’s easy to see why Australia has such huge numbers living in housing stress; and also why it’s so hard to drag your mortgaged friends out to the pub on a Friday night. Of course this is for the median Sydney price; there are cheaper properties out there, but you may have to sacrifice on size or location for affordability.
#2. Beware of strata fees (and other new bills)
On top of the expensive mortgage, if you’re getting an apartment you’ll probably be paying strata fees for the first time. During my hunt, I saw a few seemingly cheap apartments, but then realised they had strata fees of over $1200 per quarter. This works out to be an extra $100 a week, basically just for building maintenance (and if you’re lucky, maybe a gym or pool).
Also worth factoring in is water bills and council rates; and the fact you may no longer have flatmates to share your electricity, internet and gas bills with. Now it’s easy to see why so many Aussies stay in sharehouses well into their thirties.
#3. It sucks to be a first home buyer in NSW
On top of having some of the most expensive real estate in the country, it recently got a whole lot more expensive for us New South Welshies.
In 2012, the First Home Owners Grant was gutted by NSW Premier Barry O’Farrell and now only applies to “newly built” (i.e. more expensive) properties. Secondly, the stamp duty concessions introduced in the wake of the GFC were axed entirely. The damage? A NSW property virgin buying an old apartment worth around $500,000 is now about $25,000 worse off. Kind of makes you want to move to Melbourne, doesn’t it?
If you’re outside of NSW, you’re a bit luckier — so talk to your mortgage broker or a financial advisor, or search online to see what’s still available (for now!)
#4. The Federal Government will help you save for your deposit
There is some good news, though. In 2008, the then-Labor government launched a ‘First Home Saver Account‘, to help first home buyers save for their deposit. It’s basically like a term deposit, except the government charges less tax on your interest and will even match some of your contributions (up to 17% on the first $6000 a year).
It’s complex, and not every financial institution offers it, but it’s definitely worth looking into if you’re just starting to save. The benefits might seem small, but as those of you drinking instant coffee to save for your deposit will know: every dollar counts.
#5. Most banks won’t lend money for small apartments
So you’ve found your dream apartment, and it’s within your price range. Guess what? If it’s less than 40 square metres, most banks won’t lend on it (this covers most studios and many one bedrooms). Doesn’t matter if you’ve been with them your whole life or if your uncle works there or whatever. And if you do manage to find one that will lend on a small flat, you’ll probably need to have a 20% deposit saved. Which sucks, but brings me to my next point.
#6. Mortgage brokers are awesome (and usually free!)
Not only will a licensed, accredited mortgage broker guide you through all the mortgage options available to help you find the best one (which may or may not be your existing bank), and then wrangle all your paperwork for your pre-approval, but they’re also usually FREE and on call to answer all your stupid questions — like the one I kept asking: “Okay, so what do I do now?”
If you’re not sure where to start, the major ones like Aussie, RAMS or Mortgage Choice are pretty experienced with virgins like us. Seriously, it’s like having a lovely tour guide through hell.
#7. You might need two years of solid earnings behind you
Have you recently been unemployed, or taken time off to have kids, study, or go travelling? Well, to prove your reliability you’ll probably need two years of decent, documented income behind you before you’ll get pre-approved. So get ready to stay in your job you hate!
Also, if you’re a freelancer or contractor, you’ll be spending some serious time down at the OfficeWorks photocopiers, because you’re going to need to provide copies of two years of bank statements and tax returns. And then do it AGAIN every six months, to get re-pre-approved.
There is an upside, however: OfficeWorks has free instant coffee, which you’ve probably developed a taste for by now.
#8. And finally, be patient
On the lower rungs of the property market, there’s a lot of junk, so be prepared for a long search to find something that’s not shit. I inspected over 60 properties in nine months, and many people have doubled that effort.
To avoid getting disheartened, I read The New York Times’ column The Hunt, which chronicles the painful adventures of young, apartment hunters seeking perfection in the Big Apple. Seriously, after reading that column for a few months, Sydney seemed affordable and not so cramped after all.
Dylan Behan is a freelance video editor living and recent first home buyer who lives in Sydney. For legal purposes this is not financial advice obviously, talk to a financial advisor. Follow Dylan on twitter @dylabolical