13 Sep 2010

First homebuyers return to the housing market

New data released this week shows that first homebuyers are once again trickling back to the property market, following a period of sluggish activity from first-timers, who were turned off by seemingly ever-increasing mortgage interest rates and the halving of the First Home Owners Grant (FHOG) back to $7,000.

According to AFG, Australia’s largest mortgage broker, sales to first homebuyers have increased for the second month in a row, jumping from 9.5% of the market in June to 11.7% in August.

Kevin Matthews, Executive Director of AFG, says greater competition between mortgage lenders on price and policy has been largely responsible for the lift in entry-level homebuyer activity – particularly the increasing of Loan to Value Ratios.

Until recently, many mortgage lenders were only willing to lend up to 80% of a property’s value to would-be borrowers. Essentially, this meant that a 20% deposit – plus buying costs, such as stamp duty and legal fees – was required before buyers even thought about looking for their new home.

With the average house price sitting between $300-$500,000 in our capital cities, this all but wiped out the Australian dream of owning a home for many entry-level buyers.

“Who has got $60,000 saved up for a deposit, let alone funds to cover buying costs and stamp duty?” says property expert Peter Koulizos.

However, in recent months lenders have begun relaxing their strict lending criteria, and first time buyers are now able to access up to 90% or even 95% funding – which opens the door to tens of thousands potential new homeowners.

“We now have two months of data which show that first home buyers are coming back,” Matthews says.

“With property prices in many areas having stabilised, and some lenders prepared to lend up to 95% of a property’s value, property is becoming more accessible to first home buyers and more attractive to investors, especially when compared to the volatile performance of stock markets.”

AFG research show that first homebuyers were most active in NSW in August, where they comprised 15.5% of all new mortgages, compared to 11.7% in June.

First Home Buyers comprised 12.9% of all mortgages in WA, 11.7% in Victoria, 9% in Queensland and 6.7% in South Australia.

Although first homebuyer confidence is clearly returning to the market, activity levels remain well down on those peak figures recorded in August last year, when 20.9% of all new mortgages went to first homebuyers.

“The impact of government grants, which had the effect of bringing forward first home buyer demand, seems to have washed through the system,” Matthews adds.


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