To buy or build? Guide for first home buyers

Many buyers struggling to find the right home are going back to the drawing board and building rather than buying an existing home.

There are obvious benefits to a brand new home: you can build exactly what you want and enjoy shiny new surrounds, with no wear and tear costs for years to come. But there can be downsides to creating your castle.

We look at some of the pros and cons of building versus buying.


You get what you want
The great pleasure of building your own home is choosing what you want for today’s lifestyle. If building, you have two options: a project home or a custom-built one.

Project homes offer a suite of designs, usually with options to mix and match or upgrade some features. They are cheaper than custom-built homes because the builder works on an economy of scale for the building materials and products and knows exactly how much money will be made on each design. The other benefit is that you can tour display villages and see exactly what you will get.

A custom or architect-designed home will cost more but allows you to create your dream home. Just remember, the higher the quality of your materials and fittings, or the harder they are to the source, the higher the cost. Size also matters, with builders working on square meterage.

You can go green
The Nationwide House Energy Rating Scheme requires all new homes to have a minimum energy rating of six stars (one being the lowest and 10 being the highest), which means lower energy and water bills for your household, plus the feel-good factor of helping the environment. Green design includes the home’s aspect to make the most of natural cooling and warming, water tanks, energy efficient lighting and better-insulated windows.

You can be part of a new community
In a world where increasingly few of us know our neighbours, a new home in a new estate can help knit you into a community. New estates are generally located in high-growth areas that attract young families, a plus for those with kids who want to feel part of a neighbourhood. These estates are also carefully planned, often with new parks and purpose-built shopping centres. Some are even large enough to have their own schools, heightening the sense of community for residents.


Time and stress
Building a new home, even if you opt for a project design, requires your input and time. Even the simplest projects can take their toll, especially if couples disagree about certain fixtures, bad weather impacts timelines or the builder gets something wrong.

Busy people might struggle to find enough time to make decisions, liaise with the builder and other contractors and visit the building site. If that’s the case, buying an existing home might be a less stressful option.

Locating land
While new homes are generally part of new communities, the trade-off is that the land is often located in outer suburbs, with fewer public transport options and longer commutes.

Finding vacant land in established areas is nigh impossible in some cities, so older homes in poor condition are being snapped up and knocked down. For many, the cost of buying and demolishing a home and building a replacement is prohibitive. If you are looking to settle in an established suburb with ample infrastructure and amenities, buying a home and renovating it to suit your needs may be more affordable and convenient.


Whether you decide to buy or build there are still come government grants available for first home buyer to lighten the load. Check out what’s on offer at


Mortgage Index – September 2014


Fewer mortgages were arranged for first home buyers last month than at any time in the past four years according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that loans for first home buyers comprised only 9.5% of all mortgages processed in August – the lowest such figure since June 2010. Of the total $3.9 billion of home loans processed by the company, $324 million were for first home buyers. This contrasts sharply with the $1.5 billion arranged for investors.

First home buying patterns vary across the country. In New South Wales, first home buyers comprised just 3.5% of all mortgages processed. The equivalent figures were 5.5% in Queensland, 9.4% in Victoria, 9.8% in South Australia and 21.0% in Western Australia.

Mark Hewitt, General Manager Sales and Operations says: ‘The long term average for first home buyer loans is around 12% – 15% of the total. We saw overnight slumps from those levels when NSW and QLD withdrew first home buyer grants two years ago. Since then, property prices in Sydney in particular, have been steadily increasing. This represents a double-whammy for first home buyers. It also has important socio-economic implications when, even with interest rates at historic lows, people can’t afford to get on the property ladder.’

The AFG Mortgage Index shows the rate of mortgage growth slowed sharply in August 2014. Figures in the preceding months were around 20% higher than the corresponding months in 2013. August’s figure of $3.9 billion was 9.6% higher than in August 2013. It remains to be seen if this slow-down in growth reflects seasonal factors during the last month of winter, or longer term economic factors, such as the impact of the lack of first home buyers on the total market, concerns about unemployment and global instability.

The number of borrowers choosing to lock in fixed rates increased slightly from 24.0% in July to 24.9% in August, as this part of the home loan market becomes increasingly competitive. Similarly, the proportion of borrowers opting for introductory loans also remained high – 8.9% – relative to the long term average (around 5% of all new home loans), as more borrowers took advantage of special offers.

Loan to value ratios (LVRs), loans expressed as a proportion of property values, continued to nudge upwards in August to 69.5%. This compares to 68.2% in July and 66.6% in June.

Download PDF