Some first-home buyers who entered the market through the Australian Government 5% Deposit Scheme face a growing risk of negative equity, Equifax has warned. The warning comes as property values fall and the Reserve Bank of Australia (RBA) prepares to announce its rate decision on Tuesday 3 November.
Equifax analysis of the scheme’s borrowers found a split by industry. Buyers employed in rate-sensitive and discretionary sectors are considerably more likely to be in arrears than those likely employed in more stable or higher-income professions. These buyers typically started with loan-to-value ratios of around 95%, so even modest price falls could push some toward negative equity.
Those falls are already under way. Cotality’s latest Home Value Index results show national values fell 1.2% in October, leaving them 6.7% below their March peak.
Equifax executive general manager Moses Samaha (pictured left) said first-home buyers facing both high arrears and falling valuations “may start to feel that their homeownership dream is becoming a mortgage prison”.
A further rise would also weigh on buyers still trying to enter the market. Canstar estimates a further 0.25 percentage point rise could cut $10,700 from the borrowing capacity of an average full-time earner on $108,650. That would take the total reduction since January to about $58,100, or 11%. A couple on two average wages could lose an estimated $116,200 over the same period. That scenario looks increasingly likely, with CommBank economists now forecasting a rise to 4.85% and estimating market pricing for a November increase at about 90%.
The pressure on first-home buyers comes as the wider market cools. Equifax data shows mortgage demand fell 19.2% year on year in September, with first-home buyer demand down 22.1%.
The Australian Prudential Regulation Authority’s (APRA) September banking statistics show residential mortgages held by authorised deposit-taking institutions grew 0.3% for the month, half the pace of a year earlier, adding to the broader slowdown in new mortgage lending. National Australia Bank (NAB) was the only big four bank whose home loan book shrank.
“The market is losing some steam, and another rate hike could put the handbrake on even harder,” Canstar’s data insights director Sally Tindall (pictured right) said.
Demand to refinance with a different lender fell 8.8% year on year in September, and 14.2% among 26- to 35-year-olds. Samaha also said serviceability assessments are stopping many younger homeowners from switching lenders.
With borrowing capacity shrinking and refinancing harder, brokers face more clients whose pre-approvals need reassessing and fewer who can easily move to a new lender.
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