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BUYING A UNIT OR APARTMENT? NEW CHOICES IN PROPERTY ONLY IF YOU USE MORTGAGE ALTERNATIVE

MA has the power to truly open up consumer choices between different home price points AND the choice of apartment or detached dwelling.

With $20,000 saved, would you prefer to buy a $230,000 apartment with a mortgage…or a $400,000 home with Mortgage Alternative? Read on to find out why.

Before consumers looking for a home buy an apartment (or indeed any home), consider the reasons why you have settled on apartment living, and if they are cost related (i.e. less expensive than a detached home), and consider the following new choices that Mortgage Alternative may create for you!

Everyone appears wedded currently to a mortgage as the only way (financing wise) to break the rent cycle – because that is what they know. But here is where the smart money should be thinking now that there is MA.

It is generally accepted wisdom that the deposit requirement, not loan serviceability, is typically what is holding many (but not all) would be first home buyers out of the market. Look at any of the bank loan calculators on the web for a couple on $100,000 gross income combined and your serviceability is often not a problem. It’s through the roof. It’s usually not the serviceability that is the issue; it’s the deposit.

Many can service a loan over 30 years or even 25 years, but just don’t have the sufficient deposit amount saved to get the best rate or to get a mortgage at all – without paying heaps more interest by extending the loan to 30 or even 40 years. With a mortgage, you require both serviceability of payments AND a deposit suitable to (commensurate with) the total loan value relative to home value.

How much a couple with no children and a combined gross household income of $100,000 pa (for example) could usually afford to borrow will depend on their monthly liabilities after they take the home loan requested.

Conceivably, this could be an 88% (or higher) mortgage on a $400,000 home, but rarely as high as 95% as the banks (even after arranging for mortgage insurance to protect them) will not lend any higher than this without the rate going up.

Based on the REIQ researched average deposit of 12% required in Queensland (for example), a couple buying their first home for $400,000 would need $48,000 deposit saved – less if they get the First Home Buyer or Great Start Grant on a newly constructed home – but a couple on $100,000 gross is not “average”. It’s high.

Under Mortgage Alternative, they would need only $20,000 deposit saved or 5%.  You can do the same numbers at a $500,000 home and $300,000 if you like, but let’s stay with a $400,000 home for this example.

If a typical couple on $100,000 pa gross only had $20,000 saved, they could afford (based on a say 93% lend and a 7% deposit requirement) only a $280,000 apartment. With MA, an average qualifying customer could stretch to a $400,000 home! Not a $280,000 apartment! Whether it is a 7% deposit or less actually depends on the bank’s views of your credit standing and their credit and risk policies, but this is arguably in the ballpark.

So effectively, Mortgage Alternative (by lowering the deposit requirement now to 5% with the balance of the deposit coming from Assquire® investors) could potentially allow this typical first home buyer couple to access not only apartments priced up to $280,000 but apartments up to $400,000 – or perhaps not buy an apartment at all – and take a detached home up to $400,000.

In this way, MA has the power to truly open up consumer choices between different home price points AND the choice of apartment or detached dwelling.

The following article that appeared in March 2014 in other press sounds the same warning I have sounded in social media previously. Source: http://www.propertyobserver.com.au/terry-ryder/29453-units-continue-to-challenge-houses-as-the-dwelling-of-choice.html

“The Bankwest Housing Density Report revealed that 43% of new home approvals are medium-density dwellings. This is up from the 39% national average in the previous year.

Not surprisingly, capital cities account for 87% of medium-density approvals in the past 12 months. In five cities, units and townhouses comprised more than half of total dwelling approvals – including 68% in Sydney, Canberra and Darwin, as well as 55% in Melbourne and 53% in Brisbane.

Partly this is about affordability. In Sydney, the median unit price is $221,000 less than the median house price. In Melbourne the difference is $138,000, while in Darwin it’s $165,000.

But it’s more to do with lifestyle choices. Busy lives and the value people place on their leisure time points many buyers to a life-maintenance dwelling that doesn’t have gardens to weed and lawns to mow.

For those who want to be close to the inner city at a reasonable price, an apartment is the favoured option.

But buyers need to be careful. Several of our inner-city unit markets are over-supplied and it’s likely to get worse.

Melbourne already has huge vacancies (up to 10% in some near-city markets) and, according to PRDnationwide research, there are 88 large-scale unit projects under way or proposed.

Brisbane has high vacancies (6% in the CBD and approaching those levels in several inner-city suburbs) and has 69 large unit developments coming up.”

SHOULD ONE REALLY BUY AN APARTMENT FOR OWNER OCCUPATION AS A FIRST TIME HOME BUYER?

Should you REALLY buy an apartment to live in as an owner occupier? Are you buying it because that is all you can afford with the bank mortgage rules and the deposit you have already saved, or because you have thought it through and it’s the convenient and wisest financial choice for you now and in the longer term?

Have you thought about whether it is the best use of the substantial gift the State Governments give you only once in your life, in the form of first home buyer stamp duty concessions or exemptions, and in light of your longer term needs?

If you are seriously thinking you will buy an apartment to live in, and you intend to stay there for less than ten years, then please read this first. At least you will then be buying it for the right reasons, and better informed of some of the key downside issues.

We at Mortgage Alternative are here to help you into home ownership for the long term – whether your choice is an apartment near the CBD or a detached home out in the burbs. We understand the convenience for many of being close to work and the vibrant social life that CBD’s offer.

But what about your finances? Is it any wonder the Australian Financial Review Week-end edition a year ago (March 15-16, 2014 Pages 1 and 29) and many other prominent property journals have called a glut of apartments especially in Melbourne and Brisbane! It might be ok for investors and renters to invest on supply and demand imbalances, and apartment buildings are often years on the drawing boards of developers – but serious home buyers who are owner occupiers should tread with caution to ensure the purchase of an apartment is really the best use of their transfer (stamp) duty concession as a first timer.

Have a look at why we believe first home buyers need to think twice about apartment buying (as opposed to renting), taking into account both the shrinking size of the apartments being built in terms of their longer term accommodation needs COUPLED WITH the first home buyer’s highly prized first home buyer concessions from transfer (stamp) duty. This concession (or exemption in Qld) is a once in a lifetime saving of some considerable size, and not to be wasted when your savings are precious and hard earned.

Mortgage Alternative (MA) is the future of home ownership because it assists you into the dream home of your choice. We all now know from the material on www.mortgagestarter.com.au and on https://www.facebook.com/mortgagealternative that MA is all about accessing the lifestyle benefits of home ownership at the earliest possible time that you can sensibly afford – and our MA business model simply kills for the buyer many upfront costs; MA will come to be recognised in time as a better home financing payment model than a mortgage and a better reflex or reflection of a first time buyer’s journey through home ownership from being single to married, to then living with or without children and then into the retirement years. You can only do one MA contract at a time as an owner occupier, but you can trade up with MA at the end of each contract to do a fresh MA contract on your next home, giving you maximum risk protection and maximum investment flexibility over several decades, with more certainty of payments and more downside risk protection at all times. MA is thus not just for first home buyers.

Why is the choice of apartment or detached dwelling so important over a consumer’s next ten years, especially for first time buyers? Well first, because your life and accommodation needs are going to change over time as you progress through different life stages.

Mortgage Alternative aside, you only get a first home buyer’s stamp duty exemption (concession in Victoria) once in your life, so use it carefully!

What happens when your lifestyle and accommodation needs outgrow that apartment? Stamp duty on a $500,000 home (once it is not your first home) is $8,750 in Queensland and $21,970 in Victoria (once it is not your first home). That’s a hefty downpayment for a honeymoon or contribution to an awesome wedding reception with all your mates or downpayment to future children’s education or other big event in your life.

When one thinks of starting a family in 5-10 years time or maybe less, buying an apartment today to live in, that you may need to (or desire to) move out of later in 3-5 or 5-10 years time, when the family is larger and an apartment is perhaps too small for your then lifestyle, means you will have to pay say $1,000 to 2,000 in relocation costs and say $9,000 to $22,000 or more in stamp duty on the trade up home (you will have blown your once in a lifetime first home stamp duty concession when you bought the apartment). And if there is a glut currently, prices could fall from here.

That trade up cost amounts to an extra $10,000 to $23,000 or more in costs over 5 years or over $40 -$88 per week for 5 years – with no benefit to you. They are transfer taxes.

Before you buy an apartment to owner occupy, consider… Would you prefer to give $45 to $88 per week for 5 years to the Salvation Army or Smith Family, or give it to the Queensland or Victorian Government in stamp duty? Now that’s a hard one, isn’t it! Which arguably does more for the local community? Who needs it more? We will let you form your own views on that one.

But be sure to make the most of your once in a lifetime stamp duty concession, and buy with your longer term needs in mind to make the most of it.

We will write again shortly on how MA can assist you to maximise your buying power, by lowering the deposit requirement, removing upfront costs like mortgage insurance and stamp duty, and give you more control, peace of mind and certainty than a mortgage. In the interim, take a look at our FAQ’s (frequently asked questions) on MA at http://mortgagealternative.com.au/faq/