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ABS says first home buyers in massive slump: 4 expert tips to get that property

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First home buyers had a stand-out couple of years while interest rates were low, but the figures now show a different story.

When the cash rate dropped to a record low of 0.10% during the COVID-19 pandemic first home buyers took advantage and entered the property market in their droves. The number of new buyers reached record levels, making up around 42% of the entire buyer market.

But now, after the Reserve Bank increased the cash rate for 8 consecutive months in 2022, first home buyers are dropping back.

Instead, it's the refinancers who are hitting new records. According to the ABS, the value of loans being refinanced grew almost 11% over the year to November, as homeowners look for ways to combat their rising repayments.

A Finder survey of 310 mortgage holders revealed more than 1 in 5 homeowners (21%) admit they borrowed too much on their home loan – a worrying 693,000 households that have taken on too much mortgage debt.

So it's no surprise that many homeowners are looking to refinance.

What's happening to first home buyers?

November 2022 actually saw more than 50% fewer first home buyer loans when compared to the peak of January 2021.

Annually, there's been a 30% decrease in the value of loans. But because of the low numbers of buyers, the average loan size for a first home buyer reached a record of $487,288.

According to Raj Ladher, senior financial consultant from Mortgage Wealth, these findings can be attributed to those cash rate hikes throughout 2022 as well as a decrease in borrowing power for buyers.

"Borrowing capacity has dropped by approximately 25% for most borrowers over the last 12 months," Ladher said.

This places additional pressure on first home buyers to have more money saved to put towards their deposit and could potentially delay their entry into the market.

Is it too late to buy your first home?

It's not all bad news.

Back in May of 2022, the median national house price was $748,635. Figures released by Corelogic have shown an 8.40% decline in prices from the market's previous peak. This means the median national house price would now be $685,750 – a drop in value of around $62,000.

Additionally, the NSW government has recently introduced the First Home Buyer Choice. This incentive allows first home buyers purchasing a property of up to $1.5 million to choose whether they pay upfront stamp duty when they purchase their property or an annual property tax.

Ladher said that this new policy means "first home buyers will need less money to get into the property market… which will help them to get onto the property ladder sooner."

First home buyer tips

Number 1

Pay off existing debts, including Afterpay

Lenders will look into your debt to income ratio. Improving your ratio will increase the chances of getting a home loan. Focus specifically on buy now pay later debts and try to have 6 months' worth of "clean" bank statements before you apply for your home loan.

Number 2

Take advantage of any concessions

Make sure you look at all available government incentives including the NSW stamp duty waiver and the recent First Home Buyer Choice.

Number 3

Make sure you find the right property

With interest rates so high it's important to make sure the property has what you're after and that you can afford it. How much you can borrow depends on factors like your income, expenses, debts and number of dependants. You can use our borrowing calculator to see how much you might be able to borrow. Additionally, consider whether you're willing to put any work into the house such as renovations.

Number 4

Apply for pre-approval

Once you have a clear idea of if you can afford a home loan, you can approach your lender with a pre-approval. This can help you find out how much you can borrow and potentially speed up the loan process in the hyper-competitive property market.

James' tip

"It's so easy to get swept up in the excitement and romanticism of buying your first place. I remember when our mortgage broker warned us off going to an auction to make a bid for a slick-looking family home in a really good location. The guide price was right at the top of our budget.

"At the time, we were frustrated with our broker as it was (just about) within the amount we could afford to pay.
Eventually, we went for a house that needed some work done. With hindsight, it was definitely the right call.

"We now spend $800 more on our home loan than we did 3 months ago (when our fixed-rate deal ended). This would be hundreds of dollars more if we'd bought a place for $80K or $100K more. I'm pretty sure it would have placed us under mortgage stress."

– James Martin, editor for insurance

Are you a first home buyer? Here's our guide on the best home loans for first home buyers. Or, do you already have a mortgage but want to switch to a better home loan with lower rates? Check out our home loan refinance guide.

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