They are finding ways to overcome current challenges to get into the property market
First home buyers (FHBs) are borrowing nearly $75,000 more and making $1,200 higher monthly repayments compared to pre-pandemic levels, according to analysis by brokerage Loan Market.
Despite the cost-of-living crisis, higher interest rates, and house price growth driven by the pandemic, FHBs remain determined to purchase homes. Recent data from the Australian Bureau of Statistics (ABS) shows lending to this group is at its highest point in almost two years.
Loan Market figures over the past 12 months also revealed that, compared to 2019-20, first-home buyers, on average, need to save an additional $12,000 for a deposit for the total amount of $83,837 over the last year versus $71,815 in 2019-20.
However, FHBs are showing resilience, with the latest ABS data indicating that they accounted for 36.7% of owner-occupier loans, a 1.5% increase over the year and higher than the 31.8% of March 2020.
“First home buyers still want to get into the market and are finding ways to overcome current challenges,” said Loan Market broker Youeil Shol (pictured). “Getting a deposit together is harder than ever. They’re trying to save amid a cost-of-living crisis and rents have gone through the roof – they have to make big sacrifices or find alternatives.
“Support from parents, in the form of a gift, is a common way for them to get their deposit together.
“Lenders want to see strong savings habits to meet the increased serviceability. As brokers, we can show them how their living expenses play a significant role in whether they get approved for a loan or not.”
Loan Market data also showed that despite the rise in property prices during the pandemic, only 3% of FHBs purchased through guarantor loans – where a relative’s security, such as a house, is attached to the loan when a 20% deposit is unavailable. Additionally, only 2% opt for Lender’s Mortgage Insurance (LMI).
“A lot of people don’t realise that guarantor loans are temporary – you can remove your parent’s security from the loan once you’ve developed equity in your property, which might take three, four or five years,” Shol said.
Loan Market figures indicate that the average LMI payment by FHBs has almost doubled since the pandemic, from $6,535 to $11,174.
Shol described LMI as a “necessary evil” for some FHBs on their path to ownership.
“They have to weigh-up the risks,” he said. “Is it better to pay the extra insurance now and get into the market, or go back and try to build-up their deposit but potentially watch property prices rise?”
How are your first home buyers being affected by rising property prices and interest rates? Comment below.
