Buying a House and Land Package during COVID-19

Gloomy on 21/03/2020 - 22:43

Hi everyone, we are currently in the process of buying a land and house package that is worth 500k+. We are first home buyers and under the First Home Loan Deposit Scheme which is 5% deposit with no LMI.

Our land and build contract is coming in two weeks but we are worried about the current situation and we are considering to postpone our build and maybe wait for another 3-6 months.

We are both working in health and medical industry so job security is a bit fine. We got around ~65k savings but we actually want to have more.

Should we proceed or not? Thanks in advance.

Financial

Comments

  • MrBr0 on 21/03/2020 - 22:52
    +7

    We got around ~65k savings but we actually want to have more.

    I think you have your answer right there

    Never rush into large financial decisions

    • Gloomy on 22/03/2020 - 11:46

      I thought that under the scheme, our savings will be enough to start but I never thought about valuation, etc. before.

  • Indomietable on 21/03/2020 - 23:07

    How much more can you save in 3-6 months time? Does that mean you have to pay extra 3 - 6 month rent? I think your job is pretty secure now and with interest rates this low I would move in and chomp through my mortgage asap.

    • Gloomy on 22/03/2020 - 00:25

      Probably another 20-25k in 6 months and yes, we are currently paying rent. We are also worried that we need to cash out big if bank undervalue the contract price then this current situation goes out of control.

      • miwahni on 22/03/2020 - 01:49

        Can you insert a clause into your contract making it subject to the bank valuation being acceptable / confirming purchase price? Even having a finance clause will give you some protection from a low valuation - if it comes in low and you're required to tip in more funds, you can tell the bank that you don't have funds to complete the purchase and they should then decline the loan.

        The other concern is paying a mortgage while you're renting. It should be IO until construction is complete, and only on the funds actually drawn (funds for construction will be held back for progress payments). If you do go ahead and settle on land, and then the build is delayed, can you afford the IO repayments on the land portion of the loan AND your rent for a protracted period?

        • Gloomy on 22/03/2020 - 11:30

          That’s what I’m telling to my conveyancer but I reckon it is not possible? Although it is subject to finance approval.

          Even the valuation goes low, as long as I can cover it, we can pay rent and mortgage (P&I) normally but this CV19 came in suddenly and I don’t want to be living on the edge (no savings at all).

  • liquid metal on 21/03/2020 - 23:16
    +4

    What if there is a lock down, you already paid a good amount of the money and they can't start working?

    • Gloomy on 22/03/2020 - 00:26

      My partner will still be working but I’m pretty sure I’ll be affected.

      • HighAndDry on 22/03/2020 - 03:53
        +7

        Not you, the builders.

        You might have to start paying mortgage on an empty lot.

  • [Deactivated] on 21/03/2020 - 23:37

    Are you renting?

    • Gloomy on 22/03/2020 - 00:27

      Yes

  • [Deactivated] on 21/03/2020 - 23:42

    The property market is going to take a massive dump in a short space of time. It will follow the markets, which have shed 30%+ in the last few weeks. That being said you're right at the lowest end of the property market with a $500k house, so I'm not sure how much it can fall. (Probably a lot when all your neighbours start defaulting).

    • Gloomy on 22/03/2020 - 00:29

      Land is around 300k and build is 200k+. I reckon land price will go down? Not sure with the building price. Not sure if we should wait.

    • ChillBro on 22/03/2020 - 04:06
      +1

      Issue is that a lot of banks are freezing payments for several months so people may not need to sell.

      • [Deactivated] on 22/03/2020 - 10:22

        Wait till they can’t do that anymore and watch the panic.

        • ChillBro on 22/03/2020 - 10:34

          While I'm all for it, I'm not sure how likely that is to happen given that government just announced a massive stimulus package worth 10% of the nation's GDP to curb the recession.

          • [Deactivated] on 22/03/2020 - 11:35
            +5

            @ChillBro: Not going to work. And wtf is with doubling the income of those on the dole and not people who are working?

    • serpserpserp on 22/03/2020 - 12:02
      +1

      Big dump eh? How much do you think?

      People said the same thing about GFC and it was a 10% drop in Melb/Syd.

    • ufoninja on 22/03/2020 - 17:39

      You are just making numbers up like the rest of the people on this thread. If you are so sure I’ll bet you with $1000 in escrow that the Sydney property market does not drop 30% in the next month like the share market.

      • [Deactivated] on 22/03/2020 - 18:22

        Obviously it wont happen in the next month. The banks and government have put measures in place to stop that. But when those measures are spent, and people start defaulting on their mortgages in 6 months time, while we're under sporadic lock downs, It'll probably drop more than 30%.

        • ufoninja on 22/03/2020 - 21:13

          Ok name your time frame. I got 1k that says <30% in Sydney in 6months. You in or just talking out your arse?

          • [Deactivated] on 22/03/2020 - 21:36

            @ufoninja: Neither you nor I know the likely outcome of this Pandemic. It’s a dumb bet.

            • ufoninja on 22/03/2020 - 21:44

              @[Deactivated]: Right so we have established that when you earlier said with confidence the property market would follow the stock market you were like everyone else just making shit up.

              • [Deactivated] on 22/03/2020 - 22:20

                @ufoninja: Yeah, like you

                • ufoninja on 23/03/2020 - 07:49

                  @[Deactivated]: I made no claim champ.

                  • [Deactivated] on 23/03/2020 - 10:40
                    +1

                    @ufoninja: You literally tried to make a bet saying that property wouldn’t go down. That’s making a claim. Chief.

                    • ufoninja on 01/03/2021 - 15:29

                      @[Deactivated]: “ while we're under sporadic lock downs, It'll probably drop more than 30%.”

                      Quarterly reminder of how wrong you were. 30% down lol. More like 3%+ up. You are only out by 33%.

                      See you next quarter champ.

    • ufoninja on 07/08/2020 - 14:14
      +1

      So how was the big dump In the short space of time!? Cause I’m sitting here In august and NSW clearance rate is at 77% and prices in Sydney have barley moved.

      Where’s my 30% off you promised? Wish you would have actually backed up you complete dribble with a bet like I said at the time.

  • Heaps for Cheaps on 21/03/2020 - 23:52
    +4

    I think that the real housing pain won't start for another 6 months due to banks extending hardship protocols to 6 months for some applicants.

    • dcep on 22/03/2020 - 00:04

      only big4s

      others not so lucky and might not have enough equity to refinance

      • Donaldhump on 22/03/2020 - 01:36
        +1

        don't all banks have this anyway

    • askme69 on 22/03/2020 - 07:52
      +3

      This ia kicking the can down the road ny the gov and banks. The world economy was going to collapse soonish. The CV19 has just expedited it and given the Pollies a get out of Gaol free card to blame.

    • OzFrugie on 22/03/2020 - 22:14
      +1

      Dont forget lots of IO loans are rolling over to PnI around mid year based on some graphs I have seen. Although interest rate is cheaper and APRA isnt as strict now

      • Heaps for Cheaps on 23/03/2020 - 12:01

        Yeah, that slipped my mind too, and that was one of the reasons everyone for the last 2 years had said that mid 2020 would be the bottom of the market, so I was really surprised how hot the market became in the last 2 months.

        • OzFrugie on 24/03/2020 - 00:16
          +2

          Various reasons:
          1. Scomo won election -> negative gearing keeps ticking along and safe until next election at least
          2. 3x rate cuts -> cheaper credit
          3. APRA relaxed its lending requirement. Instead of mandating using 7.25% stress test, lenders can just simply add 2.5% from the offered rate, e.g. 3% loan will be stressed test using 5.5%. The result is people can borrow more
          4. Royal Commission finished with no material changed (?)
          5. All these happened after property market had a big drop of 15-20%

          Media and people working in property industry still think property market won't fall badly because low interest rate ever.
          While it may cushion the blow, I dont see how lenders are willing to lend to people who lose their income partially or fully.. they will already have increasing bad loans in their books, so I think it will make them more conservative in lending and valuation..
          Plus at the same time, lots of IO rolling over to P&I !
          Interesting time!

  • CyberMurning on 22/03/2020 - 00:00
    +3

    Just check the land temperature, make sure not over 38 degrees

    • Donaldhump on 22/03/2020 - 01:18
      +4

      the land should self isolate and socially distance itself, but given blocks are 200 m2 these days, pretty hard to do so.

    • ProlapsedHeinous on 22/03/2020 - 06:14

      Also be sure it hasn't been getting wristies in china on the sly recently

  • Maglia Nera on 22/03/2020 - 07:54
    +1

    land appreciates / buildings (houses) depreciate

    if you believe the land value will rise in the future, I'd go ahead

  • oscargamer on 22/03/2020 - 09:28
    +2

    What if your chosen builder goes bankrupt after you pay a deposit ……?

    Wait until things settle down.

    • Indomietable on 22/03/2020 - 10:02

      The thing is we don't know when things will settle down. Would you wait for months or years?

      If the builder goes bankrupt OP is covered by builder insurance which is mandatory for builders to obtain prior to taking any contract.

      • Donaldhump on 22/03/2020 - 10:05
        +1

        What if the insurer goes bankrupt

    • Gloomy on 22/03/2020 - 11:36

      We’ll just probably wait and see. And need to apply again for the FHLD scheme next July.

  • [Deactivated] on 22/03/2020 - 10:08
    +5

    Whatever you do, make sure your new build is optioned with bidets.

    • bazza1980 on 22/03/2020 - 10:40

      And have an underground bunker built to store all the pasta, rice, flour, canned goods, disinfectant and hand sanitiser in case of Corona mark II

      • [Deactivated] on 22/03/2020 - 11:10

        Corona mark II

        Crown lager.

      • serpserpserp on 22/03/2020 - 12:03

        And have an underground bunker built to store all the

        toilet paper, for when the bidet fails.

  • [Deactivated] on 22/03/2020 - 12:42

    we are currently in the process of buying a land and house package that is worth 500k+

    How much will it be worth post-covid19?
    We recently got out of a contract for a house which needed major renovations ( holes in walls, weird layout with limited access to bathroom and laundry, uneven flooring… Etc), but was a bargain 2 months ago, in favour of something which is move-in ready. The new place could use some cosmetic changes but is otherwise livable.we had to compromise on size but worst comes to worst and we have to weather a recession, we have somewhere to live and it won't send us into bankruptcy.

  • chumlee on 22/03/2020 - 18:03
    +2

    Hold off and keep saving

    Economic situation will become dire for many.

    • Gloomy on 23/03/2020 - 19:15

      Yep. We just decided to postpone our build and wait until everything settles.

  • audz on 23/03/2020 - 16:00
    +2

    Unless you have a huge surplus/savings, I suggest not.
    We will most likely have a property downturn and you will have issues with the value on the valuation report in the near future. Which will result in you increasing your loan to value ratio (LVR), or needing to tip in a lot more.
    Also with building, if there is a standstill in terms of labour or materials, you will still have to make repayments on the loan for the land. So, essentially will have to pay for your mortgage and rent at the same time.
    My client was in a similar situation, even though we had pre-approvals in place. They bought a home and land package. It took almost a year before the land was subdivided, titles issued and settled. Unfortunately during that time, the property market went downwards. The land purchase price plus the building contract price did not equate the value on the valuation report. Client had to come up with another $45k, and still take out a 95%LVR loan, which in some cases may be limited options of funders and possibly higher interest rate due to the higher LVR. Plus higher LMI fees as well. There were quite a few people in a similar situation.
    Just my 2 cents as a mortgage broker. Not advice at all.

  • Balmaino on 24/03/2020 - 16:55

    i was also about to do this- albeit a much lower value land in regional vic.
    Construction 216k land 156k. Total 375k.
    Annoying thing is, if postponed, i will lose a) the extra 10k from the regional FHOG ending 30 june, b) the 2k i have already deposited with the builder.
    Advice? pull the pin?

    • Gloomy on 28/03/2020 - 22:17

      I heard about FHOG ending this financial year, are they not renewing it? Source? And why will you lose your 2k deposit? Have you sign a contract, etc.?

      • Balmaino on 09/04/2020 - 10:32

        2k deposit is for the construction part. they use the 2k to do soil tests and draw up the plans for the slab etc., it is not refundable as they're already "doing the work" on it
        Only the Regional FHOG is ending- so it will revert from $20k for regional VIC properties back to $10k
        Haven't cancelled yet.. god this is stressful though

        • pacareer2021 on 13/06/2021 - 18:53

          I know this is old thread, but what did you do? I have thoughts of buying a property but still collecting information about the property market here in Melbourne.

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