Avoid These 6 Mistakes When Buying Your First Terrace

Underestimating Strata Fees and Special Levies

Most terrace homes in Victoria come with owners corporation fees, even if they're not part of a high-rise complex. These fees can range from modest quarterly amounts to substantial monthly bills depending on shared infrastructure, insurance, and maintenance obligations.

When calculating borrowing capacity, lenders include these ongoing fees in your debt servicing ratio, which can reduce how much you're able to borrow. Consider a buyer looking at a terrace in Fitzroy with quarterly fees of $1,200. That's $4,800 a year, and depending on your income and other commitments, it could reduce your borrowing capacity by $30,000 to $50,000. If you're already working with a tight budget, that difference can push certain properties out of reach.

Special levies are the other concern. If the owners corporation votes to undertake major works such as roof repairs, facade restoration, or compliance upgrades, you may be required to contribute several thousand dollars within a short timeframe. These levies are not always flagged before settlement, and there's no automatic provision to fund them through your loan unless you've built in a buffer. Ask the conveyancer to request recent and upcoming meeting minutes from the owners corporation before making an offer.

Missing the Stamp Duty Exemption Because of Property Value

Victoria offers a full stamp duty exemption on properties valued up to $600,000 and a sliding concession on homes between $600,001 and $750,000 for first home buyers. That exemption applies to both new and established homes, including terraces, as long as you intend to live in the property as your principal place of residence.

If you're looking at terraces in inner suburbs like Richmond, Carlton, or Collingwood, you'll find that many fall above the $750,000 threshold, which means standard stamp duty rates apply. On a terrace valued at $800,000, stamp duty would be approximately $43,070. That amount needs to come from your savings, not your loan, and it can erode your deposit buffer quickly.

Some buyers stretch their budget to secure a property in a preferred location, assuming they can cover the duty with remaining savings. If those savings are then required for settlement costs, building and pest reports, legal fees, and moving expenses, you may find yourself without the liquidity needed to complete the purchase. It's worth running the numbers on properties within the concession band before committing to a higher price point.

Ignoring Loan Features That Matter in a Terrace

Terraces often require ongoing maintenance and occasional renovation, particularly older Victorian-era homes with period features and ageing infrastructure. If your loan doesn't include an offset account or redraw facility, it becomes harder to access funds for these expenses without applying for a separate personal loan or credit product.

An offset account allows you to park savings in a transaction account linked to your loan, reducing the interest charged on your mortgage balance without locking those funds away. If you're holding $10,000 in an offset and your loan balance is $500,000, you're only charged interest on $490,000. That saves you money each month and keeps your cash available for urgent repairs or planned upgrades.

Redraw facilities allow you to make extra repayments and withdraw them later if needed, though some lenders restrict the frequency or amount you can redraw. Not all loan products include these features, and they're often absent from the lowest-rate loans advertised online. If you're comparing home loan options, check what's included beyond the headline rate.

Choosing a Split Loan Structure Without Understanding the Trade-Off

A split loan lets you fix a portion of your borrowing and keep the remainder on a variable rate. It's often presented as a way to balance certainty with flexibility, but it adds complexity to your repayment structure and can limit how you manage the loan over time.

The fixed portion typically restricts extra repayments to a small annual allowance, often between $10,000 and $30,000 depending on the lender. If you exceed that limit, break costs apply. The variable portion allows unlimited extra repayments and full access to offset and redraw features, but you're exposed to rate movements on that part of the loan.

Consider a buyer who borrows $450,000 to purchase a terrace in Northcote and splits the loan 50/50 between fixed and variable. They fix $225,000 for three years and keep $225,000 variable with an offset account. If interest rates drop within the fixed period and they want to refinance or sell, they'll face break costs on the fixed portion. If they want to make large extra repayments, those can only go toward the variable portion without penalty. That structure can work well if your income is stable and you're unlikely to make major changes during the fixed term, but it's not suited to everyone.

If you're uncertain about your employment, planning to renovate and sell within a few years, or expecting a significant cash injection from a bonus or inheritance, a variable loan with full flexibility may be more appropriate. The decision should be based on your circumstances, not on what sounds appealing in principle.

Skipping Pre-Approval and Losing the Property

Pre-approval gives you a conditional commitment from a lender based on your income, expenses, credit history, and deposit. It's not a binding contract, but it tells you how much you can borrow and gives you confidence when making an offer. Without it, you're making offers based on assumptions that may not hold once the lender assesses your home loan application.

In our experience, buyers who skip pre-approval often find that their borrowing capacity is lower than expected once the lender applies serviceability buffers and includes all recurring expenses such as HECS debt, car loans, and buy-now-pay-later commitments. If you've made an offer subject to finance and the lender comes back with a lower approval amount, you either need to find additional deposit funds or risk losing your deposit if you can't proceed.

Pre-approval also shortens the finance clause period, which can make your offer more attractive in a competitive situation. Sellers and agents prefer buyers who have already been through the initial assessment and can move quickly to unconditional status.

Overlooking the Total Cost of Buying

The purchase price is only part of what you'll pay to own a terrace. Lenders Mortgage Insurance (LMI) applies if your deposit is less than 20% of the property value, and the premium can range from a few thousand dollars to over $20,000 depending on the size of your loan and your deposit percentage.

If you're using the Australian Government 5% Deposit Scheme, LMI is waived entirely, but you'll still need to cover conveyancing fees, building and pest inspections, settlement costs, and the first year of home and contents insurance. Those combined costs typically sit between $5,000 and $8,000 depending on the property and the professionals you engage.

If you're relying on the First Home Owner Grant, which in Victoria provides $10,000 for new homes only, that amount won't be available for an established terrace. Some buyers assume the grant applies to all first purchases, which can create a significant shortfall when it comes time to settle. Confirm your eligibility for grants and concessions early, and build your budget around what you'll actually receive, not what you've heard about in general terms.

Buying a terrace as a first home buyer in Victoria is entirely achievable if you understand the mechanics of the purchase, the costs involved, and the loan structure that fits your situation. The difference between a smooth settlement and a stressful one often comes down to preparation and advice from someone who works with these transactions regularly. Call one of our team or book an appointment at a time that works for you.

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