First home buyers staying away in droves

by Calida Smylie06 Mar 2014
Nearly a third of median weekly family income is now required to meet home loan repayments, new research shows.

The latest Adelaide Bank and Real Estate Institute of Australia housing affordability report shows the proportion of income required to meet loan repayments increased one percentage point over the December quarter of last year to 30.8%.

The number of first home buyers was the lowest since the Australian Bureau of Statistics started to collect data and is also persistently low compared to the  long-run  average despite eight interest rate cuts since November 2011, the report said.

First home buyers made up only 12.5% of the  owner-occupier market compared to 13.6% in the previous quarter.

Adelaide Bank general manager Damian Percy said owner-occupier first home buyers are staying away from the property market “in droves” and this should concern policy makers.

“In spite of a benign interest rate environment, on current statistics, a historically low number of Australians do not seem to feel they are in a position to step onto the first rung of the property ladder. With a view to the future, I can’t see this playing out well. 

“Unless we can reverse this trend, the most obvious outcome will be that there will be lot of people renting right up until they are of pensionable age. The rents they may be able to afford on the aged pension in the private market at that point in time – in 40 to 50 years – are likely to be in areas well away from health-care and the other services they will require as ageing Australians.”

Percy noted the decline first home buyer activity appears to have been offset to an extent by the latest RBA investor housing loan aggregates, which grew by 0.8% in January and by 7.4% for the 12 months to January. “So there could also be other behavioural forces at work here.”

NextGen.Net sales director Tony Carn told Australian Broker if housing is to become more affordable there needs to be "real innovation" in the way a mortgage is offered over the next three years.

"One of those things is cost innovation. Obviously there’s a growing need to assist an ageing population in how they downsize and also how they find their retirement. There’s a lot of asset-rich income-poor people, and I think there’s a demand for mortgage products like reverse mortgages to help them."

REIA president Peter Bushby said all states and territories – apart from the Northern Territory – recorded affordability downturns in the last quarter. However, compared to the same quarter of 2012, affordability improved over the long term with the proportion dropping by 1.8 percentage points.

An independent survey of 1,000 people this month, commissioned by mortgage broker Aussie, shows 18.5% of people are concerned about the lack of established homes for first home buyers.

And despite the lowest interest rates in Australian history, 14.8% of respondents are worried about meeting their mortgage repayments.

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Owner occupier market slowing  

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  • by John from Geelong 6/03/2014 9:10:34 AM

    So after a decade of Government schemes to promote demand the market has grown tired of the increase cost and value of purchases so demand has fallen.

    Selling the supply side solution is harder than selling the demand side and our politicians are incapable of making the argument.

    Still, the investors will be able to move back into the market and claim their middle class welfare of negative gearing and rent the properties to the potential first home buyers who are not interested (or capable) of entering the market.

  • by Interesting 6/03/2014 9:42:03 AM

    Escalating living costs - electricity, gas, water etc..
    High government stamp duties.
    Escalating LMI costs
    5% deposit
    All these incentives for first home buyers - cant work out why they aren't 'banging on the door' to get into the market.

  • by Peter 6/03/2014 9:43:01 AM

    Even though interest rates are low the pricing of the properties is too high for first home buyers to enter. My wife and I earn $60k each, and we still think it will be pushing it if we buy a house. We would not be comfortable having a deposit less that 20% of the property value, which means we need to save around $100k. Not easy.