First Home Buyers: Don’t Rush In

Many in the media are saying that the latest interest rate cut makes property more affordable for first home buyers. I disagree.

Let us remember this is the lowest interest rate in over 30 years. Rates are artificially low to stimulate the economy short term. This is not normal or even an average.

So it is fair to assume that over the 25 to 30 year loan term that interest rates will go up again. If you can’t afford the repayments when interest rates go back up (as they will) then buying a house now is a recipe for future financial stress.

The current interest rate only makes a home more affordable if you can fix your rate at current levels for 30 years.

If you still buy even though you can only just afford the repayments now then you are betting that your income will increase quicker than interest rates. Start praying that it does.

The only thing that makes the house more affordable is free cash in the form of the First Home Owners Grant.

House prices will perhaps stop decreasing so rapidly. Lower interest rates reduce the pressure on would be sellers so they will be less inclined to drop the price of their house. It is suddenly more affordable for them to hold on.

Of course you could be really creative and just buy a less expensive house that you could afford.

TIP: calculate your affordability based on the repayments if interest rates are 3% higher than they are at the time of purchase. Then make repayments at that level right from the start.

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.

5 thoughts on “First Home Buyers: Don’t Rush In”

  1. Very timely advice. I was planning to rush in – this reminder is helpful in giving me a reality check.
    Would like some more posts like this for prospective first home buyers.

  2. I am in property myself and it has never been more affordable for first home buyers to make a start during the last several years. Sitting on the fence waiting for prices to drop further and maybe missing out on government grant is not good advice to young ones and a lot of the older generation are doing just this. The problem is not the purchase, the problem is the type of house (4 brm 2 bath) they want to START with. 2 car loans, all new furniture etc and all on payment plans. Get your foot in the door with a modest property, go without a little bit and you could be in your own home too. Stop all purchases and the whole ecomomy will suffer more, building trade, real estates and lots more.

  3. I agree Judy. Waiting for prices to drop is not necessarily a great course of action, and I don’t advocate it.

    As we both said “buy something you CAN afford”.

    Lower interest rates won’t make property more affordable. But behavioural change will.

  4. This advised is very useful. I applied it myself when I bought my first home. Inferest was then 7.25 % then i realised that they will go up eventually. I calluted my rated until the maximum then 13.5% . Mind you you I was not wrong paid up such amount of 13.5 for a very long time.Please don`t fool yourself Interest rates may be low and affordable now. Think carefully about this advise which is free . When the Interest rates go up will I be able to afford it.That`s why last year when the interest Rates went up so many people were losing their homes.losing their homes. They could not afford the repayments.

  5. Sound advice, Matt, and good to see someone go against the hype to mention it. Calculating whether you can afford to buy your first home takes a little more than considering whether you can afford loan repayments on today’s interest rates. There are great opportunities now but only if you can afford it in the future.

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