Interest Rate Rise Increases Lemon Factor Risk for Home Buyers

The rise in the official cash rate by the Reserve Bank by one quarter of a percentage point in a hot housing market where affordability is falling has increased the 'Lemon Risk' for home buyers who do not check out a property thoroughly before signing the contract of sale.

Archicentre, the building advisory service of the Australian Institute of Architects said the increased interest rate, combined with housing price rises and unbudgeted repairs, could lead to an increase in distressed mortgages, with 25,000 home buyers having defaulted over the last 12 months, according to the Reserve Bank.

David Hallett, General Manager of Archicentre said people have to factor in there will be more interest rate rises with another one being tipped for November. If this happens the average repayment on a $300,000 loan will jump by around $120 a month, and on a $500,000 loan by $200 a month.

Mr Hallett said that it is important people purchasing existing homes were thorough in their preparation for purchase to ensure they are not left in the position of discovering expensive faults after they have already signed the contract of sale or once they have moved in.

Archicentre through its extensive data base has found that at least one in three homes sold have a range of problems that could add thousands of dollars to the cost of a property, especially if the faults discovered involved structural, plumbing, electrical, termite or illegal building.

Archicentre 2009 statistics compiled from pre-purchase home inspections in each State

	Damp	Framing	Illegal Building	Pier / Stump Faults	Timber Rot	Cracking	Electrical	Roofing	Water Supply
NSW	47%	24%	29%	18%	36%	40%	31%	37%	9%
VIC	32%	20%	30%	31%	45%	43%	33%	53%	15%
QLD	31%	17%	21%	27%	33%	19%	21%	32%	8%
SA	46%	15%	32%	4%	36%	48%	31%	37%	8%
WA	30%	15%	21%	11%	20%	36%	19%	30%	12%
TAS	25%	9%	34%	13%	22%	44%	25%	40%	10%

Archicentre carries out over 20,000 pre-purchase inspections and design reports for home buyers annually on property valued at $7 billion.

"In the current economic climate where many vendors, who are facing mortgage stress and decide to sell, the lack of funds for maintenance or repairs can increase the risk of 'Lemon properties" coming onto the market."

Mr Hallett said that often the decision not to carry out an inspection can make a major financial and social impact on buyers who in some cases run into serious debt problems with unbudgeted repairs or maintenance being added to the mortgage compounding the affordability problem with a $30,000 repair cost turning into $50,000 over the life of a normal loan.

Archicentre has a Do It Yourself Checklist for the Home Buyer available for download at http://www.archicentre.com.au/survival_kit/diy_checklist2008.pdf

www.archicentre.com.au

Media Enquiries:
David Hallett, General Manager Archicentre (03) 9819 4577 Mobile: 0439 439 115
Ron Smith Corporate Media Communications Archicentre (03) 9818 5700 Mobile: 0417 329 201

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