EPISODE TWENTY EIGHT

THE WA PROPERTY Q&A PODCAST

What Grants Are Available for WA First Home Buyers? - Franca Jankowski and Andy Lo

What Grants Are Available for WA First Home Buyers?

In This Episode

In this episode of the WA Property Q&A podcast, Peter explores the complex world of property buying in Western Australia, focusing on assistance available to first home buyers. Joined by Franca Jankowski, a leading senior conveyancer, and Andy Lo, a top-tier finance broker, the discussion covers various grants, including

  • the first home owner grant,
  • government guarantee scheme,
  • and stamp duty concessions.

They delve into market challenges such as borrowing capacity limitations, competitive landscapes, and rising property prices. Practical advice is provided for potential buyers on making informed compromises, utilizing schemes like the first home super saver scheme, and navigating bank loans.

Chapters:

00:00 Introduction to WA Property Q&A Podcast

00:47 Meet the Experts: Franca Jankowski and Andy Lo

01:38 Challenges for first home buyers

04:48 Grants and financial assistance for first home buyers

07:12 Government schemes and eligibility criteria

14:16 Super Saver Scheme: pros and cons

18:58 Impact of tax cuts and interest rates on property market

22:39 Eligibility criteria for first-time buyers

23:52 Stamp duty vs. Land tax debate

27:01 Challenges for first-time homeowners

31:58 Improving borrowing capacity

39:48 Risks of cash offers and Pre-approvals

44:35 Final thoughts and contact information

Links and Resources:

Transcript

Peter Fletcher

[00:00:00] Peter Fletcher: Welcome to the WA Property Q& A, the podcast where I explore the ins and outs of buying property in Western Australia. I’m your host, Peter Fletcher, and each week I interview local property experts to help you to develop a deep understanding of the nuances of buying property in WA. From markup trends to legal considerations, no topic is off limits.

But before we dive in, a friendly reminder, while we provide valuable information, it’s important to note that nothing discussed in this podcast should be construed as personal investment advice. Always remember to seek the appropriate professional advice for your specific circumstances. Now, let’s get started and unlock the secrets to successful property buying in WA.

Welcome to another episode of the WA property Q& A podcast. And with me, I’ve got a couple of legends of their respective industries. On the one hand, I have, Franka Jankowski leading senior conveyancer, licensed conveyancer been a conveyancer in multi country, multiple countries and is just the guru when it comes to conveyancing.

And also with me is Andy Lo. Andy is a finance broker with Aussie Home. In Vic Park and just an absolute top broker does a lot of business and the business you do, Andy, is just top shelf, top quality, and we love working with your, you and your clients. So welcome to the show guys.

[00:01:36] Andy Lo: Pleasure’s mine. Thank you, Peter.

[00:01:38] Peter Fletcher: So today we kind of want to answer the question, what are the grants available to first first home buyers? Are we seeing plenty of first home buyers out there at the moment? What’s your feel on the ground?

[00:01:52] Andy Lo: There is. There’s certainly a lot of demands out there that people just really want to get out of the rental trap.

And it’s good. The good thing is like interest rate has not been

There hasn’t been many movement over the last six, seven months. So that’s a positive sign for a lot of people out there on a market, but the market is really, really competitive, very competitive.

[00:02:14] Peter Fletcher: It is competitive.

So you’ve, you’re getting clients who are wanting to transact, but they just can’t because they can’t get their offer accepted.

[00:02:27] Andy Lo: That is but just to add on that, it’s more that they need to Sacrifice or compromise on a lot of areas in terms of the price point in terms of, say, some people may have, it’s a really, it’s really numbers driven.

They have, they’re really they’re really sort of, very focused on the budgetings. Say, for example, they don’t want to spend more than like half of their pay for on a mortgage repayment, then that will kind of limit or lower their pay. Price point. Yeah. The property that you can afford. Yep. So it changes dynamically.

[00:03:09] Peter Fletcher: Yeah. Yes, I took a client through a property.

I shared the photo with with Franker and the team in Cloverdale last night. Would have been a hundred people there. And there was a queue literally from the front door to the verge and there was, People still in their cars, like the street was just chock full of cars.

[00:03:33] Franca Jankowski: It’s the same as my property, two houses from me, when I went to the open house, I had the same issue.

My whole street was blocked. Yeah. Full of cars. And it was just a wave of people in and out.

[00:03:42] Peter Fletcher: Yeah.

[00:03:42] Franca Jankowski: In a small timeframe too, cause it, the open home is only, what, 30 minutes? And inundated. Yeah.

[00:03:50] Peter Fletcher: Yeah.

[00:03:50] Franca Jankowski: Crazy. Yeah.

[00:03:51] Peter Fletcher: And what ends up happening is that the. The property is advertised that Buyers over 499, which you know that it’s never going to be that.

It’s going to be 550 to 600 as a minimum. Don’t be surprised if it goes 620 or plus. And you’re suddenly having a conversation with your client is, and that is legitimately what I said to the client. You might want to go back and talk to your broker and see what you can do with your budget because the last thing

you want to do is make too many of those compromises that you just mentioned.

Because like literally that house was pretty ordinary.

[00:04:37] Andy Lo: That’s the situation right now.

[00:04:39] Peter Fletcher: Unfortunately. All right. So these people, they want to get on the first rung of the ladder. What are the grants available to them?

[00:04:51] Andy Lo: Right. Okay. I guess I will start first. So basically Fessel Monogram. Fessel Monogram is the usually the first thing that pops up in people’s mind when it comes to buying first home.

However, being how competitive the market is right now in Western Australia, I would say it really needs a revisit because the threshold, it’s unreasonably low comparing to the current market. Now, as I stand right now, is if you buy a property, established property below 430, 000.

[00:05:30] Franca Jankowski: It’s gone up.

[00:05:31] Andy Lo: Oh. It’s just gone up.

[00:05:33] Franca Jankowski: With the budget. Just ninth of May. The budget.

[00:05:35] Peter Fletcher: Oh, okay. Alright. Sorry. I

[00:05:37] Andy Lo: Oh, no.

[00:05:38] Peter Fletcher: But you’re right. It’s gone up.

[00:05:39] Franca Jankowski: But it’s not enough? No, not enough. It’s not enough. Say four 50, it’s still rid ridiculously low. Yeah. Yeah, yeah. So

[00:05:45] Peter Fletcher: It’s now four 50 mm-Hmm. to 600. Ah. As opposed to what it used to be is 430 to 530.

[00:05:52] Andy Lo: Yeah. Yeah.

[00:05:53] Peter Fletcher: And just about the. They announced the 450 to 600 and you’re straight away going, it’s still nowhere near enough. Like, it’s just about impossible to buy a home less than 600 now.

[00:06:08] Franca Jankowski: Yeah, unless you’re buying a unit or an apartment of some sort in an older area, and it’s not even a new apartment or townhouse.

It’s gonna, you’re still looking at over 600 easy. Oh, yeah. Well, maybe one bedroom. So, yeah, ridiculous. Yeah. Yeah. Yeah. Yeah.

[00:06:24] Peter Fletcher: Yeah. So, the first homeowner grant that’s available to is it just new builds, isn’t that?

[00:06:31] Andy Lo: Not necessarily. The grant itself? The grant itself. If you want to claim that rebate, yes, it’s only for new bill.

House and land packages where if you buy established property, you generally only eligible for the stamp duty discount or concession. Yeah.

[00:06:47] Peter Fletcher: Yeah. Okay. So, so up to 450, it’s no stamp duty at all. That’s a big saving.

[00:06:55] Andy Lo: Mm hmm. It could save If you were not a first time buyer, buying 450, the stamp duty would be about 15, 000.

Give or take. Big saving. So that, that, it’s a 15, 000 savings for first time buyers.

[00:07:08] Peter Fletcher: That pays your LMI.

[00:07:09] Andy Lo: Mmm.

It will I’m saying that as a first home buyer, there are some incentives from the government that would help, help first home buyers avoid paying the lenders mortgage insurance when they have less than 20 percent deposit.

Now this scheme is called first home buyer, it’s a government guarantee scheme. Basically is if you as a first home buyer, you’re able to contribute. As little as 5 percent deposit and you, and if you are single and you earn less than 125, 000 a year or a couple or de facto married couple, you earn household income combined less than 200 grand a year, you would be eligible under the government scheme to buy a property with as little as 5 percent deposit, pay no lender’s mortgage insurance, would be eligible for competitive interest rate from a lot of mainstream lenders, and are able to buy a property up to 600, 000.

It can be a new bill or it can be an established house.

That is a massive saving for a first home buyer.

That could be say, assuming that you max out everything, buying for 600, 000, contribute just at 5%. Lenders mortgaging insurance generally would cost at least 25, 000 to 28, 000, depending on the lenders.

Wow. So that there, it’s a big savings. Big savings. Yeah. Hmm.

[00:08:50] Peter Fletcher: That is a massive saving. Mm hmm. Mm

[00:08:52] Speaker 5: hmm.

[00:08:53] Peter Fletcher: But they, it has to be less than 600k. Correct. Yes. And they, as a single person, earning less than 125, 000. 125, 000. Yeah. Mm.

[00:09:06] Andy Lo: Correct. Yes.

Which is achievable on the current market. 600, 000, we’ll still be able to get you a decent house and 125, 000 a year, you still be able to afford the mortgage repayment quite comfortably.

[00:09:27] Peter Fletcher: The 125, 000, how is that calculated?

[00:09:31] Andy Lo: Right, that’s a really good question. Now the condition is your most recent financial year tax return, your taxable income is, must be less than your threshold.

Which is 125, 000 for a single person, say right now with 2024 this year, you’re on track to be earning maybe 000, for example, but then your previous financial year, your tax return shows that you only earned, you have only earned like 125, 000. And you technically are still eligible up until the end of this financial year.

[00:10:14] Franca Jankowski: So you need to buy now. Correct, yes. Before end of You need

[00:10:16] Andy Lo: to jump on the bandwagon.

[00:10:17] Franca Jankowski: Buy now, yeah.

[00:10:19] Peter Fletcher: So is it their taxable income or is it their gross income? Good question. Which is Different. Yeah.

[00:10:29] Andy Lo: It is the taxable income. It is a taxable income on your notice of assessment that’s determined.

[00:10:35] Peter Fletcher: So if a tradie had a taxable, a gross income of 150 and they said, well, we’re going to coming up to the 30th of June, we’re going to dump 20 grand into tools and we’re going to dump 15 grand into into superannuation to pull our taxable income down to under 125, 000.

That’s a, I don’t think my sums were just quite right, but ignore that. That would be a, that would be a possibility.

[00:11:08] Andy Lo: Possible. Hmm. Possible. Hmm. Possible. Numbers. The numbers on the notice of assessment. Yes. Is the key. Yes. Hmm. Yes. And that’s the most critical number to determine our eligibility.

[00:11:23] Peter Fletcher: So there might be a temptation for someone to go, well, I’m just going to make a massive tax deduction claim.

Yes, but it

[00:11:33] Andy Lo: is, sorry, I just,

[00:11:35] Franca Jankowski: it

[00:11:39] Andy Lo: is a really, really good question. I would say then it is sort of like a double edged sword because if you do that, Yes, you might tick the box for to be eligible for the 5 percent deposit government scheme But when it comes to your borrowing capacity assessment, that will kind of hurt you because if you write off a lot Of expenses against your business.

[00:12:03] Speaker 5: Mm

[00:12:03] Andy Lo: hmm. Your borrowing capacity is calculated based on your profit Gross revenue or the sales. So you might say a lot of that as a really come a very, very common misconception amongst a lot of sole traders or business owners that they may think the revenue is the income they can borrow money from a bank.

Well, it’s half true. There are solution for that, but unfortunately that not be a legible solution. Income. Yes. Assessment method under the 5 percent government scheme. So just to keep it simple 125 grand. Yeah. That’s the magic. That’s the magic number.

[00:12:50] Peter Fletcher: Okay. Are you seeing many people use this?

[00:12:53] Andy Lo: Yes. A lot of people. Right. A lot of people. It’s Because a lot of people, they don’t really have a privilege of say living with their parents just to build up the savings like relatively quickly. So, on average, if you keep on renting 500 bucks a week, a year is 26 grand. So if they are able to save that 26 grand to build up their savings while living at home, Happy days for everyone.

A lot of people, Rankin

[00:13:23] Peter Fletcher: Knows some people. A

[00:13:24] Andy Lo: lot of people, they don’t have that privilege, right? So they rent, they’re renting a little unit and then working, and then pay all the bills, and to still, they still need to Build up at least a 5 percent deposit to that. It’s a really, really tough.

[00:13:41] Peter Fletcher: It is tough,

[00:13:41] Andy Lo: Simon.

[00:13:42] Peter Fletcher: It is tough, isn’t it? I was watching it was probably a Tik to be honest. And was how long does it take to save a deposit in the different capital cities? And if you’re earning, let’s say 80 grand a year, let’s say as a barista in Sydney you’re going to be saving a long time because Rents are higher prices are higher.

It’s just harder to get on the first rung of the ladder. So, no wonder people are taking these opportunities. What

[00:14:14] Franca Jankowski: about the super scheme? Where he’s going, putting into the super, to be able to access that.

[00:14:19] Andy Lo: Okay, that one that it’s, again, only available for some buyers. And it is an arrangement between your employer, ATO and your superannuation fund provider.

Now you need to voluntarily or deliberately make salaries sacrifice into this first home super saver scheme. Without doing that, you can’t just take the money out of your super directly to use it as a deposit to buy a first home. So you need to first make that arrangement deliberately You have to sacrifice your salary

[00:15:03] Speaker 5: up

[00:15:05] Andy Lo: to a certain amount, and then each financial year, each individual can only draw up to 15K out of that super savings scheme.

And 15K, you can consider that as a saving plan, I guess, that is the best to sort of force yourself to save up a bit of money every year. Without feeling the real pain of compromising your disposable income, I guess.

[00:15:40] Franca Jankowski: Will that reduce your your tax bracket though? It will, yes.

[00:15:43] Andy Lo: Because you are sacrificing your pre tax income into that scheme.

So you, effectively, you’re paying less tax. But then in pocket, you would really need to be a very numbers driven person to manage your budget in order to in order to get comfortable sacrificing the income.

[00:16:06] Peter Fletcher: So somebody I know very well recently sacrificed 15 grand into their super using this scheme.

So they got taxed going into the super fund, 15%. That’s standard. They did get a, tax deduction of the fifteen thousand so that’s, they’re gonna get that back in their tax. But when it came back out to them, they, because this guy was earning so much he got pinged for like at a, like, not a marginal tax rate.

It’s a special tax rate anyway. And, Basically, it was not worth doing. Yeah, it was, yeah. It was

[00:16:54] Franca Jankowski: The exercise, no?

[00:16:55] Peter Fletcher: It will be in the end because by the time it washes through this tax system and then he does his tax return this year and then he gets his tax back. Yes, it will be, but in the short term, it actually didn’t look as a, anywhere near as attractive as we thought it was going to because he got dinged for this tax.

Extra tax

[00:17:17] Franca Jankowski: because he was a high earner. So if it was somebody that was maybe not in that wage scale Yes, it might be might work a bit more advantageous. Yeah. Yeah. Yeah. Yeah.

[00:17:26] Peter Fletcher: Yeah, it was I Can never remember what this it’s a special tax. They charge Remember anyway Yeah,

[00:17:39] Andy Lo: Yes a

[00:17:39] Franca Jankowski: lot of first time buyers that do Do you use that scheme or is it

[00:17:43] Andy Lo: not many, not many, not many

[00:17:45] Franca Jankowski: sounds like a bit of a hassle it

[00:17:47] Andy Lo: is, it is, and just, I guess the, if it just, it takes a bit of work for a very minimum benefit.

So a lot of people would probably just don’t bother, jump through all the hoops, speak with the ATOs, speak with the employer to actually do that.

[00:18:12] Peter Fletcher: I’m a massive fan of the program. I think that. If you look at it in total, like you’re getting at this tax deduction of on the full 15 grand and you’re only paying 15 percent tax going in.

So you’re in front, the government’s helping you do this, but the implementation of it is not ideal. It’s not perfect. And I get what you were saying.

[00:18:36] Andy Lo: It needs to be a bit more, a lot more streamlined to make. It easier for people to operate that. And especially when they are in a situation that they want to stop paying rent, get their own, get their first home, that should really make it easier for them.

Are

[00:18:58] Franca Jankowski: you seeing any with the budgets, new budgets coming in and they’re proposing these tax cuts to everybody. Will that help first time buyers now?

[00:19:10] Andy Lo: That’s a really good question. Some banks has already made changes to their calculations to reflect that. But at this stage it’s still a bit too early to sort of, you know,

Say whether or not it’s a good idea when it comes to residential landing. Cause. It doesn’t really, I don’t really see, I haven’t really seen enough data that this tax

cut would actually help people to borrow more money on the same level of income just yet. But in saying that, it’s hopeful.

It’s hopeful. And a lot of, and coming, coming up to end of financial year, a lot of the bank will sort of review the calculations again. So hopefully. That would improve borrowing capacity to a lot of people, so that they, that would be helpful for them to get into the property market sooner rather than later.

[00:20:11] Franca Jankowski: Seeing some interest rate drops there might be.

[00:20:14] Andy Lo: That would be the most helpful.

[00:20:15] Franca Jankowski: Most likely.

[00:20:16] Peter Fletcher: Yeah, so after looking at that home open last night, I just wonder whether we need interest rate cuts. Like, this market is already at unhealthy levels of demand. Yeah. It is just nuts, and I’m seeing people paying some pretty crazy numbers.

[00:20:39] Franca Jankowski: So, you mentioned when you had a previous interviewer that you were talking to, that our market at the moment is still actually not at the level it was back in like 2004, where the We’re on projection for maybe a 24 percent increase in properties. But if you look back 20 years, this time, like 20 years ago, it was about 40 percent increase.

And then what happened? So, you know,

[00:21:05] Peter Fletcher: yeah. And then what happened is we had a GFC is what happened. You know, it’s, A lot of this exuberance it can come to an end. I don’t think it will I think it’ll slow down rather than come to an end, but it’s wow. I think this is worse than what was, what we saw in 2005, 2004, 2005.

Yes, the growth. In property prices might not be the same, but certainly the market feels stronger than it was back then.

[00:21:42] Andy Lo: More populations, a lot more populations coming in. It’s just crazy. The growth.

[00:21:48] Peter Fletcher: It is legitimately crazy. Yeah. Now, back to grants. We’ve covered first home buyer grant, we’ve covered

[00:21:57] Andy Lo: the

[00:21:58] Peter Fletcher: government guarantee, we’ve covered the concessions stamp duty concession.

There’s another one.

[00:22:05] Andy Lo: The super saver scheme. We’ve done that. Yep.

[00:22:08] Peter Fletcher: And there’s another one for the two. Two and a half thousand.

[00:22:12] Andy Lo: Which is the Home Buyer Assistant account. Home Buyer Assistant.

[00:22:15] Peter Fletcher: This is the one that gets people back on their feet.

[00:22:18] Franca Jankowski: Hasn’t changed though. That threshold is still the same.

Yes, still 400, 000. Yeah, still 400, 000. So that, so they didn’t actually, because it’s a completely different scheme and not governed by the government, nothing’s even been looked at that, which is, you know, something that maybe would be helpful.

[00:22:34] Speaker 5: Yes.

[00:22:34] Franca Jankowski: First time buyers if they put that in line with what’s happening now with the thresholds.

Yes.

[00:22:39] Andy Lo: And just to build on that though that one, there are some unique eligibility criteria that the first one buyers need to, is to meet. Which is, the property must be buying through a licensed USA agent. And must be through borrowing money from a bank. It cannot be a cash purchase and it cannot be a purchase between relatives.

It must be through a licensed real estate agent in order to claim up to about 2, 000 to sort of, cover some of the settlement costs like building and passing inspection, settlement fees. So. Yeah, something’s better than nothing. That’d help. But getting a property less than 400, 000 is just like Indicator mark at it.

[00:23:38] Peter Fletcher: Well done to the government for working out how not to pay, pay these sort of grants out. But

[00:23:43] Franca Jankowski: they’re making more money in stamp duty. So, you know, where’s that? They’re coming back. Yeah.

[00:23:48] Peter Fletcher: Now, I think we’ve covered grants pretty well. On that subject of stamp duty, And this is a question without notice to either of you.

Are we better off with a land tax or a big lumpy stamp duty?

Wow, I’ve absolutely stumped them both. I

[00:24:10] Franca Jankowski: mean, I guess it depends on how they structure it, because obviously that’d be like an annual cost that they’ll have. And if it would work out the same as what a stamp duty would be, if they were to pay that in one and they can break it out into land tax payments for everybody, then it could work out better because it’ll be absorbed into their annual rates that they pay.

Where they’re having to fork it up out front. Because a lot of people struggle to make that stamp duty payment with their initial deposits. It’s hard. And on, with adding it to their finances and so forth.

[00:24:41] Peter Fletcher: So I think I paid. I don’t know, something like six grand in stamp duty back when we bought our place.

I think it would have been about that number. Wasn’t a lot. Wasn’t a big purchase. It was a long time ago. And, you know, like I’d prefer to pay that six or eight grand, get it out of the road, get it up front, and then sit there rent free for the next thirty something years.

[00:25:09] Andy Lo: I guess it will, comes down to in the individual’s situation, like for example, it’s like a bit like insurance, like a car insurance.

If you pay, or regis, even registration, if you pay the full year upfront, usually is cheaper than you pay monthly. Usually there’s a loading on it.

[00:25:29] Franca Jankowski: You could get it like, you know, if you had a choice to say you want to defer it or paid upfront. And then that gives the individual. That scope of being able to do what they, you know, can do financially at the time of their purchase.

We’ve, we see that with well, underground power. They give the rate payers a choice to pay it up front or it’s absorbed into their annual rates for the next 10 years or so. So similar concept. I think with the land rates, it stays with the owner. That’s the thing is that you’d have to be paid out.

Like I said, if they sold the property, and there was that. Amount that would then have to be paid out at settlement. So you know, I don’t see a problem with that. I think it’s a, it could work out well because stamp duties now are not 8, You know, we’re looking at anywhere up, well 20, 000 at minimum, but you know, if you’re going into a million dollar property, which we’re seeing a lot more of these, I mean the thresholds are now increasing to 60, 000 to 70, 100, 000 worth of stamp duty, depending on your.

While you’re buying, you know, 3 million transaction, you know, you’re looking at 150, 000 to 200, 000 stamp duty. Now, if you can try to pay that, if you can pay it out, fine, but if you can’t, you know, maybe that’s an alternative. Or put on some sort of a payment plan, sort of land tax, maybe a payment plan set up with OSR for specifically for stamp duty.

[00:26:51] Speaker 5: With

[00:26:53] Franca Jankowski: that interest, of course.

[00:26:57] Peter Fletcher: I’m sure the government will work out a way.

[00:26:59] Franca Jankowski: Just type.

[00:27:01] Peter Fletcher: What are the main issues or challenges first homeowners are facing right now to get their, get onto the first rung?

[00:27:10] Andy Lo: Borrowing capacity.

[00:27:12] Peter Fletcher: Borrowing capacity? Yes. Okay. Right. That’s because,

[00:27:18] Andy Lo: Cause of leaving. Banks will review their calculation periodically.

[00:27:23] Speaker 5: Mm hmm.

[00:27:25] Andy Lo: And one of the biggest factor for the calculation is what they think a person earning, say, a hundred grand income should be spending a

month. So that will then determine how much disposable income this person is eligible to borrow money to buy a property.

Number, say for example, a hundred grand per one person earning a hundred grand a year. They may, he or she may think that it’s only spending 1500 bucks a month in expenses, but then the bank think that due to the current cost of living situation should be two or two and a half grand a month. They will use two and a half grand to assess this individual situation.

So that’s one of the sort of hurdle they’re kind of preventing. First on buyer to buy a property that they like to live in. Therefore, they will either need to come up with a bit more cash to cover the shortfall that they, the money that they can’t borrow from the bank or just compromise on the price or the area that they’d like to live in.

Yep. So, all comes to

compromises. What sort of compromise that you are comfortable to live in? To then determine what’s the best direction moving

[00:29:00] Peter Fletcher: forward. Are the banks still adding 3 percent to their serviceability?

[00:29:06] Andy Lo: Yes, that’s the most common assessment criteria. There are some situation where it will, they will only apply.

Can you explain that? Okay. Say for example, your, the interest rate that you’re paying effectively, the loan that you’re signing up may be at 6%. But then when the bank calculate how much you can borrow, they will add 3 percent buffer on top of your effective interest rate to calculate how much you can borrow.

So say for example, you may think you can afford 500 bucks a week in rent, but then when the bank and then you worked out the loan that you think you could afford also equal to 500 bucks a week in repayment, bank would not simply based on the fact that you can afford 500 bucks in rent and lend you the money.

On the 500 bucks, $500 repayment a week. Mm-Hmm. . That’s because of that 3%

[00:30:07] Peter Fletcher: assessment. So they’ll add, correct. Roughly 30% on top of the repayments possible to, to make sure that you can service that.

[00:30:14] Andy Lo: Correct? Yes. That is just a factor in potential interest rate increases over the next couple years.

Any other incidental. Expenses coming your way to ensure you can, if you can afford a 9 percent or that additional 3%, then you should have no issue paying up your actual interest rate.

[00:30:34] Franca Jankowski: When you’re saying that Like you’re going off their pay as a gross amount and you will say a hundred thousand dollars, but that’s in reality That’s not their take home pay because their taxes are taken.

So is that 3 percent also covered kind of that? Oh, how do they work out that? Is it that’s not what their net earnings would be that they would be living off if you’re going off their annual gross income.

[00:30:58] Andy Lo: That 3 percent is more to factor in the future variables, where when it comes to their income the bank will, will have their own tax calculations.

That tax calculation is based off obviously the government budget and all that to calculate how much disposable income that they have at their income level. minus all their expenses based on the bank statements and based on what they’ve declared and also what debts they may have, including student loan, HECS debt, which is one of the biggest ones, credit card, personal loan, car loan.

So all those areas plus the 3 percent combines together, it could change the individual situation dynamically to then determine how much they can actually borrow. And I thought. And how much they can afford on a house.

[00:31:58] Peter Fletcher: What are the things that a first home buyer could do to improve the amount of funds available to them from the bank?

[00:32:08] Andy Lo: Okay

do not apply for credit cards.

[00:32:12] Speaker 7: Mm hmm.

[00:32:13] Andy Lo: Or, avoid. Not that you can’t. But you need to know, you need to Set a direction, what you want to do, if you want to buy a house, these are the things, the steps that you need to take, which is avoid, avoid applying credit cards, even though you think you are able to pay off every credit card bill,

the bank would not care whether you are able to pay up the credit card in full or not.

They will simply assume that you will max out your credit card at all times, at any times. So say, a five grand credit card, the Well, a percentage that they think is reasonable off the credit card as your commitment to the card a month. So it can be three percent, can be four percent, some banks are even harsher.

Regardless, you are able to pay that credit card in full, not every month. So, another thing that they need to be aware of is personal loan or car loan. If you, if this individual is a car person, they really, they recently got a pay rise. They want to buy a really nice car. Nothing wrong with that. But then if you take up a big personal loan to get that car that you like, yes, you get the enjoyment out of it.

But then when it comes to buying a house and you need the money, borrow the money to buy a property that you’d like, it could hurt your borrowing capacity substantially. Say your income could be eligible to borrow five, 600, 000, but because of that particular personal loan that you talked up a while ago, your borrowing capacity could be reduced to below 400, 000 or even to the mid 300, 000 mark.

Therefore, Your, the property that you can afford will be substantially inferior comparing to before you took up this personal longhaul car loan. Do the big things first. Correct.

[00:34:12] Franca Jankowski: Yes. I do have a question. Go for it. So, what if a first time buyer who has, who’s not renting, staying at home, has no debt?

Asking for someone. Asking for someone. Asking for a loan. Has no debt. Has no credit card debt. No car loans. Is there

[00:34:25] Peter Fletcher: anyone’s name that you want to mention? Hypothetical. Hypothetical.

[00:34:28] Franca Jankowski: And they’ve got no debt and they’re coming in for a loan. How has their credit history been assessed then?

[00:34:35] Andy Lo: That’s a good question.

In Australia, in Australia,

[00:34:39] Franca Jankowski: In America, you have to have credit. You have to have so many cards before they even look at you. So that’s why I was asking, yeah.

[00:34:46] Andy Lo: In Australia, it’s less of an issue. Sometimes having no credit history at all could actually be could work in favour sometimes. Ultimately it comes down to how clean your sort of your bank statements, the patents.

A lot of the time the bank will ask for bank statements. Three months, six months, depending on the situation, they will, if they pick up certain expenses that’s a bit out of the box, they will ask questions. If they picked up certain regular payments to they will ask whether or not it’s a debt or personal debt or a non credit critical or non regulated that you are, that is your commitment.

So to answer your question. It’s not the end of the world if you have zero to minimal credit history before applying for a home loan. And just to build on that a little bit, people, first home buyers are leaving at home. They could actually first buy an investment property as their first ever property, not living in it, keep staying at home.

Keep a little bit more savings. At the same time, this investment property, they will have renters living in it to sort of repaying, repay their mortgage. They can just enjoy the capital growth from the equity. And when they are ready to move out home, they will have less of a drama, less of a hurdle when it comes to a deposit because the equity is there for them to access.

[00:36:25] Franca Jankowski: And they can still qualify for first time owners? Yeah,

[00:36:28] Andy Lo: as long as they don’t Move in to this property.

[00:36:31] Franca Jankowski: Yep, win win, win win.

[00:36:35] Peter Fletcher: It sounds like you’re never going to get rid of them. The person that we haven’t mentioned their name of. But you know, Europeans. Oh

[00:36:47] Franca Jankowski: my god.

[00:36:48] Andy Lo: That, that buying investment property as the first ever property, it could disqualify them from some government incentive for first home buyers.

Yes. But the big one for the big, which is the first on monogram and stamp duty concession They are able to retain that as long as they don’t leave this

[00:37:10] Franca Jankowski: market though. They probably could do that in a year Couldn’t they? With the equity. Oh

[00:37:14] Peter Fletcher: Yeah, 100%.

[00:37:15] Franca Jankowski: So it won’t be home very long. You,

[00:37:16] Peter Fletcher: You, all you’d have to do as a kid, you just go out, put your name on a title.

In 12 months time, you’ll be a hundred grand richer, full stop, end of story, the way the market’s going. Yeah. In fact, it might not even be 12 months.

[00:37:30] Franca Jankowski: So maybe that’s kind of maybe where we should be going. You know,

[00:37:34] Peter Fletcher: channeling,

[00:37:38] Franca Jankowski: more investors, capitalize,

[00:37:39] Andy Lo: capitalize on more

[00:37:40] Franca Jankowski: investors.

[00:37:41] Peter Fletcher: We should run or do an episode on how to get rid of your adult kids out of home.

[00:37:51] Franca Jankowski: There’s probably a lot of us out there in the same situation. I mean, we have kids that are struggling because the market’s moving a lot quicker than they Yeah. Save up the deposit. Yeah. It seems like it’s always out of reach by the time they get to that point where they can do it. It’s now impossible because it’s gone to a higher level.

So I, I think there’s a lot of people in the same situation and with these same struggles at the moment. It’s not just

[00:38:14] Peter Fletcher: first time buyers. It’s someone’s gone out, had a relationship, bought a home, split up. Needs, don’t want to rent, come back home. Yeah,

[00:38:27] Franca Jankowski: there’s lots of stories there. Yeah, sure. Every sector is hurting at the moment.

[00:38:33] Peter Fletcher: Is there anything we haven’t covered in terms of first home buyers getting their name on the title?

[00:38:41] Andy Lo: For first home buyers,

I guess I will have just one, I guess the biggest takeaway

for first home buyers out of this podcast would be

be comfortable making compromises.

[00:39:01] Speaker 8: Okay.

[00:39:04] Andy Lo: And as long as you, the sooner that you make those compromises with the way that the property market is growing, that capital growth you get would outperform, outweigh all the compromises that you may have taken.

[00:39:29] Peter Fletcher: Is another way of putting that Andy, don’t try and get your first property perfect?

Just buy a property. Don’t try and get it perfect. Just get on the run, first run.

[00:39:42] Franca Jankowski: On the back of that too is pre approvals. They need to go in with a pre approval at the moment. But we’re also seeing that a lot of clients are coming through to us, even first time buyers that are making cash offers, which are not cash offers.

Just to be able to get their foot in the door. Cause it seems like the first time buyers are the ones that are missing out at the moment because they’re not they’re not looking as attractive as the one that’s coming across that has no conditions basically on their contracts. So it’s kind of pushing people.

And I think maybe we’re also agents or so are kind of leaning them towards doing that so that they can get their offer accepted. So I think where’s the. From a financial point of view, with your pre approval, what is the danger lies that these people can get into, especially first time buyers, by doing something like that?

[00:40:25] Andy Lo: Well, that’s a, it’s another very good question. Pre approval seems to be a compulsory document that a lot of people need to have in order to buy property right now. But then, that one that you mentioned, cash offer. Going in with cash offer, but then still need finance. It’s a bit of a risky move, but I guess from a finance expert perspective I just need to make things happen for the client for them.

Just need to work with the buyer, put together solutions. Keep liaising with the selling agent and the seller to make that happen.

[00:41:06] Peter Fletcher: The problem there is the pre approval is still subject to conditions. One of which is valuation. And as a first home buyer, you buy a property and you think beautiful little home, lovely lawns and gardens, beautiful inside, ticks all the boxes.

What I didn’t notice and The real estate agent conveniently didn’t mention is the high voltage, high tension transmission lines that will have an impact on the valuation. And suddenly the valuation, the LVR, permitted LVR next to a high tension transmission line goes from. 90 percent down to 80 percent yeah and suddenly you’ve got this first home buyer with a 60, 000 shortfall.

How are we going to deal with that?

[00:42:08] Andy Lo: This is a really tough situation

[00:42:10] Peter Fletcher: And this is just to say like, this is what you were saying, Frank, or is it like the real estate agents are coaching these people. You want to get it accepted, get rid of your finance clause and the first home buyer, like the real estate agent is just thinking, I’m just want to get the, get best offer for the seller and the first homebuyers just wouldn’t have a clue and they go, Oh, okay.

We’ll get rid of that.

[00:42:29] Franca Jankowski: They’ve got pre approval. Yeah. They think

[00:42:32] Peter Fletcher: it’s fine, but it’s not, it’s dangerous.

[00:42:36] Andy Lo: My way of sort of plan ting to sit up, it’s just plan to sit up front with the applicants. It’s yes. PA people will give you the confidence to that, that a bank will be able to lend you the money that you need for a property.

Up to a certain purchase price, but it’s only the bank assessment on your financial situation only subject to acceptable property.

[00:42:59] Speaker 8: Yeah,

[00:43:01] Andy Lo: that’s what I always say, which I will then, if they would, I would then explain further is to certain locations, certain postcode and especially, and on that high voltage power lines I will also explain to them too.

So if that is the case. You need to be prepared to come up with additional cash somewhere in order to proceed with the purchase.

[00:43:27] Peter Fletcher: I would say to any, any client, unless your finances are, you know, like you’ve got substantial resources behind you and a pre approval, do not go cash. Never, never recommend that.

I would recommend going short on the finance approval date.

[00:43:45] Speaker 8: So,

[00:43:47] Peter Fletcher: okay. I’m confident we can get this deal done within seven days. Now that’s a really ridiculously short finance approval, Frank, or I’m sure you will attest to that. But I’d prefer to have a crack at seven days, getting it done in seven days, than not having the benefit of a finance clause

[00:44:07] Andy Lo: on there.

I would agree. Okay. Mmm, I would agree. Just more protections.

[00:44:12] Franca Jankowski: Especially with Andy. Andy, two, three days max. Sometimes we actually get the finance approval before we get the contract in, so that’s how he is. You know? That is often mentioned. He is a legend.

[00:44:22] Peter Fletcher: He is a legend. He does it. He does it.

[00:44:25] Franca Jankowski: I’ve never had a finance decline from Andy’s clients at all.

Well, that’s because

[00:44:30] Peter Fletcher: we get the contracts after the finance approval. Guys, we need to wrap it up. Franca, if people want to talk to you about conveyancing, how do they get hold of you? You can

[00:44:42] Franca Jankowski: visit me on resi. com or call me at the office anytime.

[00:44:46] Peter Fletcher: Fantastic.

[00:44:47] Franca Jankowski: Always available.

[00:44:48] Peter Fletcher: And Andy, if people want to do business with you, what’s the best way for them to get hold of you?

[00:44:52] Andy Lo: Aussie Home Loans, Victoria Park. I will be the first person that pops up. Yes. Or, just look up Aussie Andy. I will be the first one.

[00:44:59] Peter Fletcher: Aussie Andy, wow. Is that true? You rank for Aussie Andy?

[00:45:04] Andy Lo: Well, I mean, just keep it

[00:45:05] Peter Fletcher: catchy, I guess. Jeez. It’s like back in the old days, Aussie John.

[00:45:10] Andy Lo: Ha ha ha

[00:45:11] Peter Fletcher: ha. Yeah.

Alright, well, that’s all we’ve got time for, folks. This has been a fantastic episode. Thanks, Peter. Thanks, Peter. Thanks for having me. Andy, thanks for coming along. And until next week, this has been Peter Fletcher for the WA Property Q& A podcast. And that wraps up another episode of the WA Property Q& A.

We hope you found our discussion valuable and gained some valuable insights into the world of property buying in Western Australia. Remember, while we strive to provide useful information, it’s crucial to consult with the appropriate professionals Before making any investment decisions. Don’t forget to tune in next week for another exciting episode where we continue to unravel the mysteries of the WA property market.

If you have any questions or topic suggestions, feel free to reach out to us. Until then, happy property hunting and remember to seek the right advice for your personal circumstances.

Thank you for listening.