Moving home is a big life change, so it's not surprising that a huge number of myths have grown up around it. Some have a large element of truth within them, but others are less helpful. With this in mind, you need to be careful to separate pure myth from useful information.
Myth 1: You have to look at hundreds of properties till you find the one you want.
That's not true at all. In fact, if you're looking at too many properties, you haven't put enough thought into defining exactly what you want; go back to the drawing board and refine your requirements, or narrow down the geographical area.
You probably do need to look at a few different suburbs and a few properties of different types while you're researching exactly what you want, but once you have a good idea of what you need (and what you'll need to pay for it) you shouldn't be wasting time on too many viewings.
Myth 2: You need a 20% deposit to buy
A lot of mortgages do ask for a 20% deposit, so there's an element of truth in this idea. But if you don't have that amount of savings, don't despair; some lenders are prepared to advance up to 95% of the value of the property so you'll only need to find a 5% deposit, as well as your buying costs. Of course, the lender's running more risk in lending a higher percentage of the price, so the interest rate will be higher to reward them for that risk, and you'll also need to get lenders' mortgage insurance. But if that's all that's standing between you and buying your own home, don't let it stop you.
Myth 3: You should always fix your mortgage for as long as you can
Again there's a bit of truth in this one, particularly now, as interest rates are close to all time lows. But there's always a cost to getting a fix; interest rates are higher for longer term fixes. A thirty year fix would pay its way if you were going to live in your new home for 30 years, but most Australians only stay put for 7 years. You'll probably find better rates in the 5 to 7 year bracket, and unless you really plan on staying much longer, that's as long as you need.
Myth 4: Once you've got the deposit in cash, that's all you need
Wrong, wrong, wrong. As well as the deposit, you need to be able to pay the legal costs of purchase, inspection fees, stamp duty, and arrangement fees on your finance. Removal costs could also be substantial, unless you have relatively little stuff and one of your mates has a van. You might need to budget up to 11% of the property price in extra costs, though the First Home Owner Grant makes life a bit easier for first home buyers. Make sure you budget sensibly before committing yourself!
Myth 5: Buying a home is a really tax efficient way to invest
There are two things wrong with this statement, though it's not actually untrue. First off, a home only becomes tax efficient when you sell it, because you will be exempt from paying capital gains tax on any profit you make. But that's not much use to you while you're living in it! You also can't put it in your Superfund. Secondly, we would not characterise your home as an investment. It doesn't pay you any interest or dividends, and you can't easily sell it without having another place to go.
So be careful about treating your home as an investment. Putting money into bricks and mortar is good—but you also need cash in the bank, and shares or funds are probably a better way of saving for your pension.
Myth 6: It's always better to buy than rent
The problem with this property myth is that the answer depends on two variables—your circumstances, and the property market. If, for example, your finances are too stretched or your job is uncertain, it could be better to rent; if for whatever reason you're unable to pay the mortgage, you could lose the house and all the money you put into it. If you can rent cheaply, you might be able to put together a larger deposit, enabling you to buy somewhere better, or perhaps get a cheaper mortgage. And if you want to work abroad in a year's time, you're better off renting (particularly since you'll lose the homeowner tax exemption if you stay abroad).
On the other hand if you could easily afford to buy, and the mortgage would cost the same or less than you're paying in rent, it's true that you'd be better off buying—as long as the property market doesn't fall. Rather than trusting the myth, do some hard thinking and do your own sums. A thoughtful guide to some of these issues can be found here.
Myth 7: Buy the worst house on the best street
This is a well known quote, and broadly true, but as so often the devil is in the detail. If there are huge refurbishment costs, you might never make money on the deal. You also need to assess whether the property will ever come up to scratch. For instance, if a house is the only one in the street that doesn't have a garden, but is squeezed in between two bigger properties, it will never be worth the same as its neighbours, no matter how much you spend on it.
On the other hand, if you want to live in a particular suburb but can't afford average prices, buying a lower priced property might be a good tactic. If a little DIY plus a couple of weeks' work for the plumber and kitchen fitter can transform it from ugly duckling to gleaming swan, then you're going to come out smiling. You might also see a case where the 'worst' house has the potential for an extension, a pool, or a second bathroom which would quickly bring them up to spec. If so, jump at the opportunity!
Myth 8: Buying from a mortgagee sale is always a bargain
Heading to a mortgagee sale in search of a bargain makes good sense, but you have to know what you're doing. Properties that end up at these sales might not be in great shape, so you'll need to do your sums properly to work out whether the eventual price will justify the expense. Remember, too, that banks are legally obliged to get the best price for these properties that they can, so they will probably have set a fairly high reserve. Finally, mortgagee sales tend to have the best bargains just when most people don't want to buy, after a market collapse. Be brave and you could do well.
Myth 9: You need a real estate agent to sell
This isn't quite true. You could put your home on the market yourself—see our piece on the Pros and Cons of Sale By Owner. Alternatively, you might think about contacting us at Sellable for a different way of selling your property.
Myth 10: Property prices only ever go up
Oh dear. Does anyone still believe that? Look at some of the mining towns in WA, where property prices have halved, and it's clear that this isn't the case. Or even Sydney in recent months!
In other markets, of course, it feels as if property prices are going up every week. But you need to consider factors such as the affordability ratio (how many years' average salary is represented by the average house price), growth in the local economy, and population as part of your assessment of the market. If you're upping your offers and overlooking clear defects in properties because rocketing prices have made you desperate to buy, take a deep breath and think whether you really need to join the horde.
If you're buying a home for the long term, don't overcommit yourself. The people who get hurt in market downturns are those who stretched a bit too far when they bought their properties; don't join them!
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