Laura Akhurst - 29 Jan, 2014

First Home Buyer’s Battle Investors in Borrowing War

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First home buyers are struggling to enter the housing market as investors snap up any bargains, and take advantage of record low borrowing rates.

Australia-wide, first home buyers accounted for approximately 12.6 percent of the housing market in October 2013. According to the Australian Bureau of Statistics (ABS), first home buyer rates of borrowing fell in Victoria (VIC) and New South Wales (N.S.W) during October 2013. First home buyer activity made up 11.7 percent of new home loans in VIC. This was the lowest rate since 1991 and N.S.W had a marginal improvement from 6.8 to 7.4 over the same month.

Investors, on the other hand, are said to be raising the value of the number of loans being taken out with an 8.2 percent increase in loan values to $10.3 billion. Whereas, owner occupier loans only grew by 1.7 percent over the same month.

Economists have said that investor activity has been significant with annualised investor home loan rates jumping by 47 percent over the last 6 months. In comparison, housing construction jumped 1 percent in October. Property analysts feel that these rises are attributed to low interest rates, housing price gains and strong growth in building approvals.

The growth of investor activity and the pent-up demand of established homes, is pushing up home prices. This, in turn, is forcing first home buyers out of the market, as many cannot afford the inflated cost of housing. Economists believe that this may be enough to curb any further rate cuts by the Reserve Bank of Australia (RBA), otherwise the RBA may risk overheating the residential property market, which could result in a market boom.

At present, the RBA have left the official cash rate on hold at 2.5 percent to help stimulate housing market activity. But, property analysts still feel that the housing market has a ways to run as these cuts are still making their mark on the economy.

Economists, however, are predicting that no further rate cuts will come. Instead, they believe that interest rates will begin to rise as early as February or March 2014. They are also predicting that by the end of the year that the official cash rate will be hovering around 3.5 percent.

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