Research reveals gaps in investors’ knowledge while most first home buyers flunk basics

New research shows that while the majority of investors have a good grasp on basic property buying skills, first home buyers are clueless when it comes to knowing the ins and outs of property buying.  The results showed a concerning 61% of first home buyers failed a basic property buying literacy quiz, compared to only 27% of owner occupiers and just a quarter of investors.

Home loan lender ME tested the knowledge of 1,000 Australians who are looking to buy their first home or have already purchased an owner occupied or investment property.

Turns out, those buying their first home were not as clued up as they’d like to think, despite nearly 70% saying they feel confident about making financial decisions and around half saying they understand the property buying process and related costs.

Key first home buyer knowledge gaps:

  • 88% of first home buyers don’t understand that lenders’ mortgage insurance covers lenders, not borrowers.
  • 85% of first home buyers don’t know there’s no cooling off period when buying at auction, compared to 66% of investors.
  • 78% of first home buyers don’t know that you need to pay the deposit on auction day.
  • 66% of first home buyers don’t know what conveyancing is), with 38% incorrectly thinking that the term refers to checking boundaries or physical issues with your property before you buy.
  • 63% of first home buyers don’t know what an offset account is.

 

ME Head of Home Loans Patrick Nolan said overconfidence and low financial literacy is a risky combo that could be costing first time buyers.

“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 Nolan.
For investors

Investors came in first place, but despite this good overall standing, there were some areas that investors definitely need to brush up on, otherwise they could find themselves missing out on cash flow, or even buying property.

“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,” said Patrick Nolan, ME’s head of home loans.

“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.

“But like it or not, financial decisions including buying a property is best made on facts — a hunch or a guess could lose you thousands.”

For example, when buying a property at auction, 46 per cent of investors said they are required to pay the deposit when they win an auction on the day. While this answer was the one with the most answers, 53 per cent were either incorrect or not sure as to when the deposit should be paid.

Investors were also the group with the most correct answers about whether or not there is a cooling off period when you buy a property at auction, with 36 per cent saying there is not, compared to 34 per cent of owner occupiers and 15 per cent of first home buyers. However, everyone was mostly incorrect or unsure, which included 64 per cent of investors.

Mortgage insurance was another topic that investors were unsure of, and in fact the majority were wrong about: only 20 per cent of investors answered correctly, saying that it does not cover the lendee at all. The majority, at 43 per cent, said that it would cover them somewhat.

ME’s advice for home buyers 

“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,” said Nolan.

“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.

“But like it or not, financial decisions including buying a property is best made on facts – a hunch or a guess could lose you thousands.”

Nolan said there are multiple ways home buyers can get informed and take charge:

  • Do your online research. There are plenty of educational options like the Government’s MoneySmart website and individual banks’ own information.
  • Crunch the numbers. Many lenders have online calculators to help you understand things like borrowing power and what your repayments could look like.
  • Independent advice. Speak to independent experts like an accountant who can answer all your unanswered questions.

ME’s Property Literacy Survey is based on a survey of 1,000 Australians who are looking to buy a home or have already purchased one. The survey was conducted via online survey method in May 2018. https://www.mebank.com.au/news/

 

By | 2018-07-11T12:41:01+00:00 July 11th, 2018|News|