Advice for first home buyers after new research shows most are clueless about buying property: ME Ba
New research shows that most first home buyers are clueless when it comes to knowing the ins and outs of property buying.
A concerning 61 per cent of first home buyers failed a basic property buying literacy quiz, compared with only 27 per cent of owner occupiers, and a quarter of investors.
Home loan lender ME Bank tested the knowledge of 1,000 Australians who are looking to buy their first home or have already purchased an owner occupied or investment property.
But it turns out that those buying their first home were not as clued up as they would like to think, despite nearly 70 per cent of respondents saying they feel confident about making financial decisions, and around half saying they understand the property buying process and related costs.
ME Head of Home Loans, Patrick Nolan said overconfidence and low financial literacy is a risky combination that could be costing first time buyers.
“It is 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,” said Nolan.
According to the research, these are the biggest gaps in first home buyer knowledge:
88 per cent of first home buyers don’t understand that lenders’ mortgage insurance covers lenders, not borrowers.
85 per cent of first home buyers don’t know there’s no cooling off period when buying at auction, compared to 66 per cent of investors.
78 per cent of first home buyers don’t know that you need to pay the deposit on auction day.
66 per cent of first home buyers don’t know what conveyancing is) with 38 per cent incorrectly thinking that the term refers to checking boundaries or physical issues with your property before you buy.
63 per cent of first home buyers don’t know what an offset account is.
“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,” Nolan told WILLIAMS MEDIA.
But it isn't just first home buyers
Owner occupiers and investors are predictably more informed than their first home buyer counterparts, but ME’s research still identified some areas for improvement.
Among the most worrying findings, 66 per cent of owner occupiers and 65 per cent of investors are unsure of the key things that contribute to the amount of interest you pay on a loan, meaning they could be saving more on interest.
Meanwhile, 53 per cent of owner occupiers and 54 per cent of investors don’t know that you need to pay the deposit on auction day, meaning they could be seriously caught out if they win a bid and don’t have the money ready.
Thankfully, there were some aspects of property buying that respondents excelled at. Nearly all of those planning to buy or have already purchased a property understand the buyer pays stamp duty, not the vendor (90 per cent got this correct). Similarly, 71 per cent understand what ‘equity in your home’ means i.e. the difference between the market value of your property and the amount you still owe on your home loan.
Furthermore, 69 per cent understand you pay less interest on a 10-year home loan versus a 30-year loan, and 62 per cent understand that banks look at multiple factors before determining how much they can lend borrowers.
How first home buyers can be more informed
Do your online research. There are plenty of educational options like the Government’s MoneySmart website and ME’s engaging online school of money, Ed, that can outline the basics and explain all the home buying terminology.
Crunch the numbers. Many lenders have online calculators to help you understand things like borrowing power and what your repayments could look like.
Independent advice. Speak to independent experts like an accountant who can answer all your unanswered questions.
“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.
“But like it or not, financial decisions including buying a property is best made on facts – a hunch or a guess could lose you thousands," Nolan said.
Source: The Real Estate Conversation 26th June 2018 https://www.therealestateconversation.com.au/news/2018/06/26/advice-first-home-buyers-after-new-research-shows-most-are-clueless-about-buying
