Debbie Shankar - 27 Aug, 2015

First Home Buyers Borrowing More Despite APRA Changes

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New data suggests that first home buyers will continue to buy an investment property even though interest rates are likely to be raised on investment loans.

According to research, first home buyers are choosing to buy an investment property, rather than a home to occupy, and investment numbers are climbing. The latest survey revealed that more than 35 percent of first home buyers were investors. This has risen by 15.5 percent since last year’s survey.

Investment experts suggest that the increase in first home buyer investment property buying is a result of rising property prices, where many Australians want to live closer to work so they can reduce commuting times and be closer to the action, but cannot afford the cost of buying a home in these areas. This is why many people are electing to purchase an investment property in the outer suburbs, while they rent closer to the city.

Rising Property Prices and First Home Buyers

Rising property prices are encouraging more first home buyers to purchase an investment property, rather than a home to live in. According to recent data, one in four first home buyers feel that buying an investment property is a ‘more affordable option’ than buying a home as an owner-occupier.

However, the new measures that the Australian Prudential Regulation Authority (APRA) have introduced to curb investment lending could rock the boat for first home buyers who are purchasing investment property. This is attributed to the fact that APRA have capped investment home loan growth to 10 percent per annum for major lenders, which may reduce first home buyer numbers. Therefore, financial experts say that they expect to see a drop in first home buyers purchasing investment property over the next 12 months.

The biggest disappointment with the lending changes that have been made is that first home buyers are the ones who are likely to be the most affected. Foreign and seasoned investors will continue to invest in property as they will have the capital means and assets to do so. This, in turn, will see the gap between the ‘property haves’ and ‘property have-nots’ increase, especially as property prices continue to rise.

How are Property Price Rises Likely to Effect First Home Buyers in the Future?

Regardless of rising property prices, many first home buyers are pursuing their dream of first home ownership by borrowing more to secure a home. According to the Australian Bureau of Statistics (ABS), first home buyers took out, on average, a loan of $340,200 in June. This figure was $31,600 higher than the same time last year, and $52,300 higher than 5 years ago.

Furthermore, first home buyer commitments have risen by 6.8 percent over the last quarter, which economists say is an early sign of economic improvement. Though economists are predicting that first home buyer numbers will fall over the coming months, due to a growth in property investment demand and changes to lending policy.

In New South Wales, first home buyers, on average, borrowed just under $400,000 to secure a property. This was highest level of first home borrowing of any state.

In Victoria, first home borrowing, on average, reached $338,300. This was almost a record amount for this state.

Economists agree that Sydney and Melbourne property price rises are overinflated and as a result are having a direct impact on the national outlook. But what makes matters worse is wage increases are not keeping up with the property price increases being witnessed and this is decreasing housing affordability even more.

What Does the Future Hold?

Economists say that in the ‘olden days’ when we paid less for homes and interest rates were higher, inflation was higher and wages increased quickly. This, in turn, reduced the burden of higher interest rates and home loan values didn’t seem to be all that large. Today’s home loans in comparison, seem harder to manage because while interest rates are low, we are typically paying more for homes, inflation is low and wages are not increasing. This then means household incomes are tighter and there is less residual cash flow, which makes it harder for home buyers to make ends meet.

Despite this, and APRA changes, it is likely that first home buyers and investors will remain in the game for some time to come. Over time competition for homes is likely to drop, which will see property prices ease.

While interest rates are low, it is unlikely that first home buyer and investor numbers will fizzle-out. In fact, economist are predicting that demand will remain steady. According to recent data, financing commitments for homes rose by 2.8 percent in June to $32 billion. Occupied housing finance rose by 5.5 percent over the quarter to $18.56 billion.

Are you thinking of buying your first home? Then contact eChoice and find the right home loan for YOU today.

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