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How first home buyers can get the upper hand as investors return to the market

There has been a long-held public assumption that when investors return to the housing market in increasing numbers (as they are doing now), that spells bad news for first home buyers. But one expert thinks there could be a silver-lining for people wanting to get their foot on the property ladder.

Director of Aus Property Professionals and author of Positively Geared, Lloyd Edge disagreed with the sentiment the first home buyer boom would dissipate now that more investors are returning to the property market.

“The logic is that investor activity always drives up prices, and because investors have more spending power, they will always be able to outbid a first home buyer with limited savings,” Mr Edge said.

“But what if there was a different side to the story? What if the return of investors to the housing market actually presented an opportunity to smart first home buyers?”

The age old question: Apartment or house?

Australian Bureau of Statistics data showed that in April, investor loans across Australia increased by 2.1 per cent, reaching a record four-year high of $8.05 billion.

But Mr Edge suggested the properties that investors have their eyes on right now may not be the same ones first home buyers are looking at.

Investor activity is currently being focused on semi-detached, terraces, freestanding homes and not apartments.

While going to head-to-head with a cashed-up investor may be tough for buyers looking for a house in a metropolitan area, there’s far less competition in the apartment market. Mr Edge said this was good news for first home buyers.

The ‘gap’ that shows an opportunity for first home buyers

Mr Edge noted the gap between the median cost of renting a house in Australia and renting an apartment was just $5 in 2011.

Fast forward 10 years, and that gap has obviously widened significantly.

In Sydney, the median cost of renting a house is now $80 more than the median cost of renting an apartment, according to ABS data.

Many home buyers are currently living in apartments and paying less each week in rent than investors who may already be living in houses.

Thanks to the cheaper cost of apartment rents, these first home buyers are able to save more money each week towards their deposit, which may ultimately allow them to buy into the market sooner.

Mr Edge also suggested first home buyers should consider ‘rentvesting’ for a few years (continuing to live in a rental apartment while leasing out their own property), as the lower rental costs could help improve cash flow and pay down the mortgage sooner.

Government support gives first homeowners an advantage

When purchasing a property, buyers usually need to provide a 20 per cent deposit to avoid paying costly Lenders Mortgage Insurance (LMI).

However, thanks to the Australian Government’s First Home Loan Deposit Scheme, a large number of first home buyers in NSW can secure their chosen property with a deposit of just 5 per cent, which could just be the edge they need to get the deal.

Under the Scheme, the Federal Government acts as a guarantor for up to 15 per cent of the home loan, meaning first home buyers won’t have to pay the cost of Lenders Mortgage Insurance.

Another form of government assistance that is giving first home buyers an edge is the NSW Government’s First Home Buyer Assistance Scheme.

The Scheme means that eligible first home buyers don’t have to pay stamp duty on homes valued at less than $650,000, or will receive a discount on stamp duty for homes valued between $650,000 and $800,000.

As a result of the scheme, first home buyers have a clear advantage over investors when looking at properties within that range, with eligible first home buyers saving a massive $24,457 on stamp duty for a property valued at $650,000.

“If you’re a first home buyer looking to enter the market, the return of investors doesn’t necessarily spell trouble,” Mr Edge said.

“In fact, if you find the right property, make the most of paying low rent, and take full advantage of the government assistance on offer, you may just find yourself in a very strong position to secure your first property.”

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