Why COVID-19 could put some first-home buyers in a strong position

The property market isn't immune to the economic effects of coronavirus. Sales volumes have plunged in recent times, prices are down and in-person auctions and open inspections remain banned under social distancing restrictions.

While this is bad news for homeowners and sellers, it puts first-home buyers in an unexpectedly strong position. Properties that may have been out of reach just months ago are now becoming accessible under current market conditions.

It's fair to say that our current situation was unexpected only a couple of months ago. Prior to the coronavirus outbreak, the Australian property market kicked off the year on a high note. In March, Sydney house prices were up 14.5% year-on-year, with Melbourne close behind at 12.5%. Only 9% of economists surveyed by Finder at the end of 2019 expected a recession in 2020. The public were slightly less confident, with 49% of Aussies expecting a 2020 recession in December, according to Finder's Consumer Sentiment Tracker.

The First Home Loan Deposit Scheme, introduced in January, dropped the deposit required for non-guardian loans from 20% to 5%. While many economists suggested that this scheme would have little impact on the market, it did allow some new buyers onto the property ladder. The market was recovering smoothly - until coronavirus blindsided everybody in March.

Although the long-term economic effects of COVID-19 are yet to be seen, we can safely predict that property sales are likely to be impacted over the coming months, with the majority of people unable to leave their homes.

Yet this may be a silver lining for potential first-home buyers. Those with a secure job and a deposit saved could be the most powerful people in the property market over the coming months.

Low interest rates

It's never been cheaper to pay off a mortgage. During the late 1980s and early 1990s, first home buyers signed up for home loans with interest rates as high as 17%. These days, rates are exponentially lower, with offers as low as 2.29%.

As a result, it has become cheaper to fork out for mortgage repayments than it is to pay rent in some locations. According to CoreLogic data, up to 77% of properties in Darwin have cheaper estimated mortgage payments than rent. This is followed by up to 60% of properties in Hobart and 49% in Brisbane.

Sellers more willing to negotiate

UBS Bank has predicted house prices to fall anywhere from 5-20% as a result of the pandemic. This has seen many sellers begin to pull out of the market altogether. Those who remain are likely anxious to make a sale. This can give first home buyers more wiggle room when negotiating - and help them to snap up a bargain.

First Home Loan Deposit Scheme still available

Although the pandemic has impacted the way properties can be sold during this time, the government handout is still available for eligible first-home buyers, along with exemptions to stamp duty.

In response to the outbreak, the government has also doubled the time frame for finding a home from 90 to 180 days, putting first home buyers in a stronger position than they were previously.

Job security remains key

Steady employment remains at the crux of the issue. First-home buyers working in essential industries such as health or aged care are better placed to weather the economic storm brought on by coronavirus than those in more vulnerable roles.

First-time buyers need to feel confident that their role is secure before taking out a mortgage - but even if they were to lose employment during this time, most of Australia's major banks are offering mortgage holidays for up to six months for affected customers.

For anyone who wants to be in the best position to grab a bargain, get your finance sorted now. This will give you some confidence when considering your options and give you a realistic budget to work with. Additionally, many agents won't take a booking for a viewing unless you have pre-approval for finance. With auctions happening less often, sellers are more eager to settle directly. Being ready to move quickly is key.

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