According to a survey carried out by lender ME Bank, 61 per cent of first home buyers are “clueless” when it comes to purchasing property. In comparison, only 27 per cent of owner-occupiers and 25 per cent of investors failed the test.
“Financial literacy is a valuable asset and one of the biggest money savers over time, especially when it comes to buying what is likely to be the biggest investment of your life,” ME Bank head of home loans Patrick Nolan said.
“Some Aussies fail to educate themselves because they find finances dull and complex and think they know best, while others find working with numbers difficult and put their head in the sand.”
These were the top five buyer blind spots:
1. Who does lenders’ mortgage insurance cover?
2. Is there a cooling off period when buying at auction?
3. When do you pay the deposit if you’re buying at auction?
4. What is an offset account?
5. What is conveyancing?
According to ME, 88 per cent of first home buyers don’t understand that lenders’ mortgage insurance covers the lender, not the borrower.
Likewise, 85 per cent of first home buyers aren’t aware that there’s no cooling off period when buying at auction. However, 66 per cent of investors are aware.
Seventy-eight per cent of first home buyers don’t know that the deposit is due on auction day and 63 per cent don’t know what an offset account is.
Two-thirds of first home buyers don’t know what conveyancing is and 38 per cent of this group think it refers to checking physical issues and problems within the property.
“It’s difficult enough for those trying to get their foot in the door to save up a deposit and decide where to buy. A lack of necessary property buying knowledge is sure to increase the risk of young Aussies being caught out with unexpected costs, adding to the existing stress,” said Mr Nolan.
However, investors and home owners are also being tripped up.
Two-thirds of owner-occupiers and 65 per cent of investors aren’t certain of the key things that contribute to the amount of interested paid on a loan, while 54 per cent of investors also don’t know that the deposit needs to be paid on auction day.
“They could be seriously caught out if they win a bid and don’t have the money ready,” ME warned.
Across the board, nearly all buyers (90 per cent) understand that stamp duty is paid by the buyer and not the vendor, while 71 per cent understand that equity means the difference between the property’s market value and the amount owed to the bank.
Additionally, 69 per cent of all borrowers know borrowers pay less interest on a 10-year loan than a 30-year loan and 62 per cent know that banks consider a variety of factors when deciding how much to loan.