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Ripe market conditions for a first home buyer frenzy

First Home Buyers Advocate

For years now, first homebuyers have been squeezed out of the inner suburbs as cashed up investors dominated the Melbourne inner suburb investment market. Week after week, we would attend auctions for clients and see bright eyed first home buyers flanked by supportive friends and family attend auctions, only to leave disappointed and frustrated in defeat.

Some decided to push into the outer suburbs to give themselves better odds of getting their name on their first property title, others decided to ‘keep saving’ in the hope of saving more than the market increased. This is difficult even for those with big incomes or the good fortune of having obliging parents letting them live at home rent free. The market can move at an incredible rate, so this is a risky path as you could easily get priced out of the market.

In recent auction weeks, we have seen very little competition from investors for the typical investment properties in the inner suburbs. Well maintained, older style one and two bedroom apartments with parking in blue chip suburbs are excellent quality properties for first homebuyers or investors. They have the right ‘investment bones’ if they are in a quality street but may require some ‘cosmetic love’ but are passing in at auction, giving buyers the perfect platform to negotiate a reasonable purchase price.

So why the lack of investor competition? There are a number of factors that are keeping investors from being the hot competition we have seen in previous years. David Cowen, Director of Finstra, explains that the banks have taken a much more risk averse approach when lending to investors.

  • Interest Only loans are harder to get approved. The banks appetite for investment lending has decreased drastically in the last 12 months.
  • Banks have implemented postcodes they consider no go zones for lending due to a higher level of risk.
  • The most substantial change is borrowing capacity assessments are significantly tighter with the “interest rate buffer” going from 1.5% above the current interest rate in recent years to 7.25% which is 3-3.5% above the current rate. This means if the bank believes you cannot manage the mortgage at 7.25% in your current financial position, they are likely to decline your application.

David believes that while this is making it difficult for investors to get the finance needed to bid as carefreely as years gone by, this regulator imposed investor market ‘slow down’ is perfect timing for homebuyers as banks are extremely competitive for homebuyer business and are offering some impressive packages and rates to homebuyers.

The state government’s stamp duty concessions for first homebuyers is another positive development which should be the final push they need to take the plunge into the property market. First homebuyers are saving thousands with zero stamp duty to pay on any purchase up to $600,000 and purchases between $600,000 and $750,000 the savings decrease on a sliding scale the closer to $750,000 the purchase price.


We are seeing a widening gap in the market for first homebuyers to enter the market between $600,000 and $750,000 as investors are not propping up the market and the higher the purchase price the fewer other first homebuyers are in competition. So, if the budget allows, this is a perfect price point to enter the market to minimise competition, save on stamp duty and pick up a well priced first home!

At The Property Bureau, our advice for first time buyers remains unwavering.

  • Buy a property that is in the best part of Melbourne that you can afford as the land value is the driver for capital growth, don’t get fooled by a pretty renovation. This is easy to coordinate yourself and on a budget that works for you. No paying for someone else's renovation.
  • Don’t be tempted by ‘too good to be true’ house and land packages. The glut of these type packages on the market at any one time is reason enough to steer clear. Potential for poor quality development, low land value areas and little infrastructure can be a recipe for disaster.
  • Treat this first property purchase as a stepping stone to build a solid foundation of growth to use towards your future purchases. If you get this first purchase right, you are in the best possible financial position to build a successful property portfolio and financial freedom in the long term.
  • The basic principles of investing are supply and demand – buy a property in low supply and high demand, not a property that is being mass produced and in abundance.

If you would like to discuss our First Homebuyer Service, please contact our team on +61 3 9018 7870

About the author

Kristy prides herself on making her clients feel welcome, understood and in safe hands from their very first meeting.  Her 16 years of residential and commercial experience in the Melbourne property market has taught her to ensure every ‘i’ is dotted and ‘t’ crossed and how imperative this is when transacting property. 

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