Many First Home Buyers who took advantage of the attractive incentives on offer as part of the government’s stimulus package, and who took advantage of low interest rates and affordable prices to get into the property market with a home of their own, are now coming under increasing pressure after three interest rate increases.

Some must be questioning why they should get ‘burnt’ after doing exactly what was asked of them, i.e. invest in property during the downturn. However, the real goal of both Federal and State governments was to keep the construction industry moving, and to keep builders and developers in business. The First Home Buyers were therefore simply the means to that end.

This raises an interesting question: if first time buyers are now feeling the pinch, why aren’t property investors aren’t feeling the same?

The answer to this question highlights the attractiveness of the Australian investment property concept for the investor. In the case of a private home buyer, the owner is liable for 100 per cent of the interest charges on the mortgage, and as mortgage rates rise, they get increasingly squeezed.

In the case of an investor, there are tenants to contribute the first 50 per cent of the mortgage cost, with the government picking up the next 30 per cent of the tab through tax concessions. This leaves the investor with a minority slice of the mortgage to cover.

Note: In many properties today, it is possible to be neutrally geared, meaning that 100 per cent of the costs of the mortgage and outgoings are covered between the tenants and tax concessions.

Investors are also able to tap into the equity in their family homes as a deposit on an investment property. So as prices rise, so too does the value of their homes, and hence their equity, which keeps them in the game. Hopeful first time buyers must unfortunately now stand on the sidelines as prices and interest rates rise faster than their ability to save.

While investors are sitting pretty, one must feel for the First Home Buyers. More than 153,000 people used the first homeowners grant in 2009. But now that the grant has been reduced, and the record low interest rates are slowly disappearing, the proud new owners are finding themselves battling with debt.

Our message? If you’ve got some equity in your home, use it to buy another property. Prospective first home buyers would be sure to do so if they had access to such a great opportunity.

If you would like to learn more and discuss how McCarthy Group can assist you, click here.