Slump in property market has first home buyers running scared.
Although rates of first home buyers entering the market is never constant, figures released in early November 2013 indicate that the number of first home buyers in the property market is in one of the biggest slumps in history.
The latest Australian Bureau of Statistics (ABS) data, released in November 2013, shows the proportion of first home buyer loans out of all loans financed is in the biggest slump in history.
September 2013 saw just first home buyers finance just 12.48% of all loans, which is the lowest level ever recorded since ABS began recording this data in July 1991. Overall just 6,364 first home buyers settled in September. The proportion of refinanced home loans on the other hand is among the highest levels ever seen, reaching 33.8% in September. These statistics indicate a very difficult financial situation for new home buyers and the levels of refinancing may show why.
With interest rates at record lows, borrowers with an average mortgage of $300,000 are paying almost $400 less in repayments each month. While this is great for existing borrowers who are taking further advantage of the competition and switching lenders for even bigger savings, it's having a negative impact on first home buyers
First home buyers have been hit with a double blow because of property prices and interest rates. With property prices rising this means higher costs and lower interest rates are eating away at their savings for a deposit. These concerns are stopping first home buyers from getting into the market, according to a finder.com.au survey conducted last month.
The best way to stay on top of the property market is to keep yourself informed and compare rates. Take a look at some home loans available for first home buyers and compare the rates in the table below.
Comparison of First Home Buyer Loans
A look at the stats
The survey found that the biggest barrier for first home buyers is that they can't afford a big enough deposit (51%), while nearly one in three are worried they won’t be able to afford mortgage repayments (29%)
In addition, 76% of first home buyers surveyed are also concerned that lenders won't pass on full rate cuts in the future, which is no surprise as most lenders have not followed all of the Reserve Bank cash rate movements of the past few years. However, out of the first home buyers surveyed, 62% would prefer to save a smaller deposit to get on the property ladder sooner.
Comparing men and women, men are overwhelmingly bigger risk takers than women, with almost three quarters (70%) of male first home buyers preferring to save less and borrow more, compared with 57% of women.
Lenders mortgage insurance (LMI)
Home buyers looking to get into the property market before rates rise again should be careful of the added costs of a smaller deposit and bigger mortgage such as LMI, which is charged for loans with less than 20% deposit. For instance, saving a 10% deposit for the median house price in Sydney will cost $69,000 and LMI would be around $13,848. Add the LMI fee to your mortgage and it could end up costing over $38,000 over a 30 year term.
The table below shows the deposits needed to avoid LMI on median house prices in Australia.
|Capital City||Median house price||20% deposit amount to avoid LMI|
*Source: finder.com.au, Australian Property Monitors June quarter 2013 data