Debbie Shankar - 13 Nov, 2015

First Home Buyers are Under Greater Stress But Overall Confidence is Rising

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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% in March 2015 to reach 102.1, but then fell to 98.4% 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% up from 9.0% in March 2015. In addition, approximately 14% of first home buyers said they expected to experience mortgage stress, this was up from 8.0% in March 2015.

The HCI found that higher living costs was the main reason for first home buyers experiencing mortgage stress with 22% stating this, and 33% stating that this was the main reason for them expecting to have mortgage stress. It was also noted that 16% of first home buyers had difficulty meeting their mortgage repayments, compared to 6% 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% 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% of first home buyers were more likely to experience mortgage stress due to borrowing too much compared to 4% 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% rise from 20 to 21%.

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% felt that now was ‘not a good time’ to buy a home, this figure had risen from 6.0% . Whereas 67% of first home buyers felt that ‘now was a good time’ to buy, up from 66%.

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% of first home buyers saying they saved their home deposit, compared to 66% in 2014, and 72% 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% in 2013 to 9% in 2015, and personal loans up from 8% in 2013 to 18% in 2015. This may explain why a greater number of first home buyers were heavily indebted, 35% in this year’s survey compared to 23% 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% of first home buyers had used LMI.

Forty% of prospective first home buyers anticipated being able to save a 10% deposit to buy a home, while 39% felt they could save 11 to 19%. Only 21% believed they could save the required 20% as a deposit.

The report found that if all first home buyers were required to save a 20% deposit then 30% said it would take them longer to save, and 14% said they’d abandon their dream of home ownership altogether.

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%, and by a decrease in the number of respondents who used more than 50% 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% to 48%. In addition, prospective home buyers who thought it was ‘a good time to invest in property’ fell from 47% to 44% over the same period. However, in saying this, 86% of respondents said that they anticipated the Australian property market to remain stable over the next 12-months.

Do you want to know more about first home buyer loans?Then contact eChoice and find the right home loan for YOU today.

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