Back in May the Victorian State Government introduced stamp duty concessions. This means that first home buyers should no longer be forced to pay stamp duty on properties valued up to $600k. Properties up to $750k will attract a lower stamp duty cost. Investors currently pay stamp duty on the full value of the property. These measures were put in place to help first home buyers break into the property market, the question is… has it worked?

The simple answer is: Yes. First home buyer share of home loans rose in June to 8573 up 15% of the total. It’s the highest figure in nearly three years. The number of first home buyer commitments increased by 1.6% for the month, following a 28.9% increase the previous month and is the highest since October 2014. According to the ABS the value of all dwelling commitments rose 0.8% to $33.26bn. This is great news for home buyers that are slowly coming back into the market. There’s no doubt, it has worked.

But on the flip side, it’s caused a knock on effect. While there’s been a definite uptick in first home buyers, auction clearance rates have gone up and so have property prices. Auction clearance rates continue surge indicating strong price growth. Melbourne registered the strongest clearance rate last week at 73.9% and Sydney’s clearance rate bounced back to 66.4% from 65.4%. Melbourne is the busiest auction market with 880 properties up for sale. It recorded a median auction price of $820,000 which was higher than the $740,000 over previous weekends. And if you think about it, it makes sense. Higher demand pushes prices even higher. And here’s the scary part, first home buyers are coming back into the market at a time when almost everyone is tipping mortgage rates will be higher over the next year. And then there is the growing chorus of economists, analysts and pundits who are convinced that a property collapse is imminent.

At some point, our over-heated property market will cool down as new supply hits and market dynamics change. Property prices will move closer to wages. Property has boomed due to oodles of cheap credit and relaxed bank lending. Tighter lending standards will see this reversed in due course. There’s no doubt about it, at some point this property boom will end. Falling property prices will erode or even wipe out the equity in any first home buyer’s house. In-fact mortgages can go into negative equity. If interest rates go back to their norm say around 7%, first home buyers will find it difficult to keep up with mortgage repayments. It’s a scary thought. The real question then becomes, are we setting Gen-Y first property buyers up for a massive financial burden later on in life?

Unfortunately for first home buyers, it’s really a damned if you do, damned if you don’t conundrum. I mean you can sit by and wait for a property collapse that may take years to come or you can take this stamp duty opportunity and buy now while you have the chance. Our advice is to take this opportunity and buy now, but don’t over-leverage yourself. Buy within your means. Forgo the South Yarra mansion. That way, if and when interest rates rise, you’ll be OK. Keep an eye on the market and compare home loans so that you can use this as bargaining power with your current lender. And always seek advice from a qualified financial advisor. If you don’t have an advisor and you’re seeking good, honest financial advice, give us a call at Sornem Private Wealth. We’ll put you on the right track and make sure your future is secure.