Q:I'm 20 years old and thinking of buying my first property by myself. I'd like to build in Munno Para in Adelaide and have been looking at a house and land package around $250,000. I'm unsure if now is a good time to buy with interest rates going up so much and so quickly. However, the land is getting more expensive and scarce so I don't know whether I should postpone it too long. Should I wait for a few months to see what interest rates do, or should I buy a house now before prices go up further?

When I do buy, should I live in the house and rent out a room, or rent the whole property for a year so I can make extra mortgage repayments before moving in?

Amy Williams, via email.

My personal view is the Reserve Bank has gone too far and should actually be cutting interest rates. The RBA has raised rates three times since November, pushing its official interest rate to the highest level in more than 12 years. We are starting
to see signs the economy is cooling. Growth is slowing, consumer sentiment has fallen to a 15-year low and some of the country's biggest companies have put a freeze on hiring.

US pressure

Many economists are saying the Reserve Bank will keep rates on hold for the rest of the year, and the next move is likely to be down. Still, home loan rates may continue to creep up whether
the RBA raises rates or not. The major banks are independently lifting their rates to cover higher financing costs. The credit crunch in the United States is forcing our banks to pay more to borrow the money that they lend. Banks are passing those higher costs on to us. So far our big banks have put their home loan interest rates up 0.25 per cent more than the Reserve Bank has increased official rates. Some investment gurus say lenders will have to put their home loan interest rates up another 0.25 per cent to cover the higher cost of borrowing.

Looking forward

When you do your numbers make sure you can still afford your mortgage repayments if your home loan interest rate rises by one per cent.

You don't want to pay all the transaction costs associated with buying a property, then have to sell out because you can't meet your repayments.

If the forecasters are right, now looks like a good time to get into the property market because prices are tipped to jump when interest rates start to fall. Leading economic forecaster BIS Shrapnel says house prices will rise up to 40 per cent across Australia in the next five years as demand continues to exceed supply. It predicts a construction shortfall of 60,000 dwellings by June, and double that by mid next year.

Southern strengths

Adelaide is tipped to be one of the country's best-performing capital cities during the next couple of years. Property prices are likely to accelerate as construction struggles to keep up with demand, wages continue to rise, and affordable prices attract interstate investors.

The state will also benefit from the mining boom and the demand for rental properties that has propelled prices in places such as Perth.

Smart strategies

First-home buyers like yourself are usually better off moving in to their property rather than renting it out. This allows you to take advantage of the government benefits on offer. When you purchase your first home you're entitled to a one-off grant from the government of $7000. In South Australia first home buyers are also entitled to the Stamp Duty First Home Concession if you buy a place for less than $250,000. To receive these benefits you must move into your property and make it your principal residence within 12 months of settlement on an existing home or within 12 months of completing the construction of a new home.
If you don't move in it's classed an investment property and you don't get any help from the federal or state governments. If you're living on your own or want help paying the mortgage, renting your spare bedrooms out is a great idea. An extra $100 or so a week is $5200 a year - that would give you a good buffer if interest rates increase. Buying a property, especially your first one, is a big decision. There's no need to hurry into a purchase. Take your time and do your research. Work out how much you can afford to spend, shop around for the best mortgage and don't go over your limit.