According to the latest research, first home buyer stress is escalating. But in saying this, home buyer confidence as a whole is also rising.
First Home Buyer Confidence
A recent report revealed that the number of first home buyers who were stressed by their mortgage had grown over the last six months. This was attributed to a number of economic factors that were placing greater financial constraints on first home buyers.
First home buyer confidence, according to the 11th Genworth Homebuyer Confidence Index (HCI), increased by 3.8 percent in March 2015 to reach 102.1, but then fell to 98.4 percent in September 2015. This was attributed to the fact that the number of first home buyers who felt stressed by their mortgage had grown to 21 percent up from 9.0 percent in March 2015. In addition, approximately 14 percent of first home buyers said they expected to experience mortgage stress, this was up from 8.0 percent in March 2015.
The HCI found that higher living costs was the main reason for first home buyers experiencing mortgage stress with 22 percent stating this,and 33 percent stating that this was the main reason for them expecting to have mortgage stress. It was also noted that 16 percent of first home buyers had difficulty meeting their mortgage repayments, compared to 6 percent in last year’s survey. This is despite there being two official cash rate cuts made in February and May of 2015. The majority of these first home buyers had fixed their home loan rate at higher rates than the variable.
First Home Buyer Loans are Higher
According to the Australian Bureau of Statistics (ABS) the average sized first home buyers loans have increased by 18 percent since August 2012, to $341,200 in July 2015. This could suggest that some first home buyers are over committing financially. Research indicates that 14 percent of first home buyers were more likely to experience mortgage stress due to borrowing too much compared to 4 percent of all home buyers.
However, the number of first home buyers who said they were comfortable with a higher loan-to-value ratio home loan marginally increased between March and September 2015, with a 1 percent rise from 20 to 21 percent.
The HCI report stated that the official cash rate cut made in May 2015 may have led to an increased number of first home buyers feeling more at ease with borrowing more. Of the number of first home buyers surveyed, 9 percent felt that now was ‘not a good time’ to buy a home, this figure had risen from 6.0 percent . Whereas 67 percent of first home buyers felt that ‘now was a good time’ to buy, up from 66 percent.
The report indicates that many first home buyers feel that accessibility, or the ability to be able to enter the property market is their main obstacle to buying a home. Rather than affordability, or being able to meet their mortgage repayments.
In addition, two in five first home buyers stated that high property prices was their greatest barrier to buying a home, while one in five said saving a deposit was their greatest barrier. These figures are consistent with the March survey.
First Home Buyer Funding
First home buyers were more likely to use other sources to help them save a home deposit. This is a trend that is continuing to decrease with 51 percent of first home buyers saying they saved their home deposit, compared to 66 percent in 2014, and 72 percent in 2013.
A number of first home buyers were said to be using alternative funding sources to make ends meet. This included credit cards, up from 3 percent in 2013 to 9 percent in 2015, and personal loans up from 8 percent in 2013 to 18 percent in 2015. This may explain why a greater number of first home buyers were heavily indebted, 35 percent in this year’s survey compared to 23 percent last year.
Saving a Deposit to Buy a First Home
According to property experts, a key obstacle many first home buyers must overcome when looking to buy a home is saving a deposit. This is why low deposit home loans, where Lender’s Mortgage Insurance (LMI) comes into play, are important. The survey indicated that more than 50 percent of first home buyers had used LMI.
Forty percent of prospective first home buyers anticipated being able to save a 10 percent deposit to buy a home, while 39 percent felt they could save 11 to 19 percent. Only 21 percent believed they could save the required 20 percent as a deposit.
The report found that if all first home buyers were required to save a 20 percent deposit then 30 percent said it would take them longer to save, and 14 percent said they’d abandon their dream of home ownership all together.
Australian Home Buyer Confidence
National home buyer confidence on the whole, according to the HCI, has risen marginally from 99.2 in March 2015 to 99.6 in September 2015 on the index. However, these increases are said to have been influenced by the official cash rate falling to 2 percent, and by a decrease in the number of respondents who used more than 50 percent of their income to service their debt.
While the HCI has reached a high after the global financial crisis, prospective buyers who feel that ‘now is a good time to buy’ have dropped from 52 percent to 48 percent. In addition, prospective home buyers who thought it was ‘a good time to invest in property’ fell from 47 percent to 44 percent over the same period. However, in saying this, 86 percent of respondents said that they anticipated the Australian property market to remain stable over the next 12-months.
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Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!