Property prices are climbing fastest at the lower end of Australia’s housing market, making it increasingly difficult for first-time buyers to secure a foothold on the property ladder. But brokers say borrowers are getting more creative than ever to break in.
"Everyone is thinking outside the square at the moment," Belinda Sugars, franchise owner and mortgage broker at Mortgage Choice in Parkside, South Australia, told Australian Broker. "The lower end is still moving in an upwards direction and a little bit quicker than the top end.
So people are finding ways around it and changing the way lending happens. That's just what people do when things change."
In October, dwellings priced below the thresholds of the government’s expanded First Home Guarantee scheme climbed 1.2% nationwide, while properties above the caps were up 1%, according to data from research firm Cotality, the company formerly known as Core Logic.
Bryan Ong, director, mortgage broker and investment advisor at Rise High Financial Solutions, said: "It's definitely harder to get into the market now, because the market is always driven by demand and supply. And a lot of first-time homebuyers right now, based on their income, have not caught up with how fast property prices are rising. So a lot of first-time homebuyers are going to be looking at the lower end of the market. That's where everyone can only afford. But that's also because it's driving prices up even further because of all the demand there."
Australian Prime Minister Anthony Albanese's Labor camp updated the national Home Guarantee Scheme last month. Starting 1 October, the scheme, commonly known as the 5% deposit scheme, removed income caps for borrowers, eliminated the need for Lenders Mortgage Insurance (LMI) and got rid of the cap on annual places in the program.
It’s no surprise that the revamped scheme sent demand surging, with eager buyers rushing to take advantage of the new rules. But it has also intensified competition in an already overheated housing market.
But brokers say it's not just the revamped housing scheme that is driving the imbalance. Prices were already climbing, fuelled by Australia’s persistent housing shortage.
"The general affordability of home prices means first-time buyers are going to be on the lower end of the market; that's just where first-time homebuyers can afford now," Ong said. "But also, the government scheme came in with the new revised price caps and definitely shifted things upwards as well. But I don't think that's the only reason. It's mainly due to affordability, where people can afford, in terms of what's pushing the lower end of the market up."
Brokers, in turn, are finding increasingly creative ways to help buyers get a foothold.
"We're seeing a lot of different scenarios happening now that weren't happening years ago. They're all trying to find a way into markets," Sugars said.
Examples include young people receiving inheritances earlier, siblings purchasing property together, young adults living at home longer and parents purchasing property with their adult children.
"Everyone is very solutions-focused," Sugars said.
Ong, who is based in Adelaide, but works with clients nationally, said in South Australia there are additional, local government grants that are designed to help clients get into a median-priced property price, even with a limited deposit.
"In South Australia, we have things like HomeStart loans, which is a South Australian backed government lender where they would help people enter the market with a smaller deposit."
HomeStart offers loans with a deposit as low as 2%, compared with the 5% required for Albanese's national housing scheme. Ong added that several states — including New South Wales, Victoria, South Australia and Western Australia — offer shared-equity schemes in which the government backs cash-strapped borrowers by contributing a variable percentage of the deposit.
"Also, if clients lack savings, but have good borrowing capacity, going down the guarantor option is another way to get into the market," Ong said. "It's where their parents or grandparents put their deposit as a security.
"The other thing that a lot of people are doing — and where the government is pushing for some buyers — is to build properties," he said. "So there are more government grants available for clients who build property. Those grants, across different states, could be between $10,000 and $15,000.
"So there are many different ways to get into the market; it's not the end of the world," Ong said. "There are ways to get in. But yes, it's definitely harder."
