Joanne Ly - 9 Sep, 2020

The drive behind first home buying

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According to ABS housing finance data, the largest proportion of national owner occupier mortgage activity have been first home buyers, for more than eight consecutive years. First home buying activity has steadily increased due to housing supply, economic growth and the official cash rate being slashed by the Reserve Bank of Australia. Over the years, Australians have become more practical when thinking of buying their first home. First home buyers are continually flocking to the real estate market, backed by a steady Australian economy and investor numbers falling.

In this article, we take a look at the first home buying trends that are driving buyers to the market, first home buyer government schemes, and what the market will look like following the coronavirus pandemic.

First Home Buying Trends

The analysis from ABS house finance data showed that first home buyers comprised of almost 30% of the national market for owner occupied home loans – which is 5% above the decade average. First home buyers also continued the trend across every state, taking a larger proportion of the market when compared to the decade average.

It’s not a surprising revelation given that the Government and real estate market have provided first home buyers a push into the housing market with incentives and grants. Mortgage rates have decreased, home loan approvals have been easier to secure with other mortgage lenders, and there have been additional incentives provided by State Government’s such as stamp duty exemptions and discounts to first home buyers. This is on top of the already existing First Home Owner Grant and First Home Buyer Assistance scheme that is applicable on new properties across most states.

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A recent analysis of Australian home buying trends through the Genworth First Home Buyer Sentiment Report, has outlined significant changes in trends amongst first home buyers. Many of the first home buyers that were surveyed are choosing apartments over homes as they look to gain an entry level property. This was seen to be most evident in Sydney (36.3%) and Melbourne (25%) where one in three and one in four planned to purchase an apartment as their first property. The report also stated that 75% of these prospective first home buyers believe now is the best time to buy their first home, with “falling property prices and a stable economy” as the primary driving reasons.

First Home Buying Data

First home buyers are continuing to make a comeback, reaching the highest level since December 2009 (seasonally adjusted figures). New loans taken out by owner-occupier first home buyers increased by 21.33%, year on year. Overall, the value of new home lending also increased by 14%.

First home buying numbers typically tend to increase when either the Federal Government or State government raise their First Home Owners Grant or First Home Loan Deposit Scheme. Let’s look at the data:

Source: ABS
Source: ABS

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The Government’s First Home Loan Deposit Scheme

Announced in May 2019, the government’s First Home Loan Deposit Scheme (FHLDS) has been popular amongst first home buyers. The scheme aims to provide up to 10,000 first home buyers per year with financial accessibility to assist with their purchase. Under this scheme, first home buyers earning up to $125,000 annually (or $200,000 for couples) can save around $10,000 by having their lender’s mortgage insurance waived.

Under the scheme, eligible first home buyers can purchase a home with a deposit as little as 5%. This works because the National Housing Finance and Investment Corporation (NHFIC) guarantees to a participating lender up to 15% of the value of the property purchased that is financed by an eligible first home buyer’s home loan. There are currently 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme, including NAB and Commonwealth Bank.

Prime Minister Scott Morrison stated, “It can take nine to 10 years for an average household to save a deposit. We want to help Australians realise the goal of buying their first home by cutting years off the time it takes to save up.”

First Home Buyers, Housing Supply and the Australian Economy

Economists suggest that housing supply increases are assisting to make homes more affordable for first home buyers. The same economists also suggest that favourable national economic conditions stimulate greater buying activity.

According to ABS data, the first significant rise in first home buying activity occurred in 2009. Driven by the onset of the global financial crisis (GFC), the Federal Government offered first home buyers a stimulus package. The next peak in first home buying activity occurred in 2013 when state governments offered first home buying incentives.

A state’s economy is an influencer for first home buyers as the home buyer has greater confidence and a sense of increased financial stability. Economically speaking, Australia’s weakest states were Western Australia and Tasmania; these states also have lower population numbers than other states. New South Wales continues to be the exception to the trend, as it has strong growth in new builds and a strong economy, but housing affordability remains to be a problem.

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Sydney predominately has a short supply of homes. This lack of accommodation is consistent with low levels of dwelling completions that have occurred across the state in comparison to population growth.

Over the last few years, Sydney building approvals have risen considerably. This increase has seen pricing growth moderate. If supply were not as high in this area of Australia, then prices could be even greater than they currently are.

Record low-interest rates have also enabled first home buyers to gain access to funding and encouraged them to save more. Those first home buyers who can provide a potential lender with a strong saving history also give themselves a higher chance of securing a home loan.

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What the first home buying market will look like moving forward

It is expected that first home buying figures will drop slightly due to the ongoing coronavirus pandemic and its flowing effects to the Australian economy and overall job security – let alone the implications to public auctions and open houses. Although the coronavirus pandemic will have an impact on first home buyers and their borrowing decisions, those in the property market are still unsure what effect the pandemic will have on the overall scope of the market and mortgages in particular.

Although it will be difficult to tell what impact COVID-19 will truly make on first home buyers, mitigations and allowances are already being put in place by major lenders as well as the government. For example, under the First Home Loan Deposit Scheme, participating lenders can now extend successful applicants’ places by a further 90 days, provided they still meet all the terms and conditions of the lender. Lenders have also introduced relief packages for prospective and current borrowers that are facing financial difficulty in light of the virus. Such relief packages can include reduced interest rates on variable and fixed home loans, deferred payments, lower temporary payments, and hardship programs.

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Words by Joanne Ly

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