First-home buyer activity plummets

Rising interest rates are hitting the first-home buyer market, as data shows new loan commitments for that sector have almost halved since their January 2021 peak.

Australian Bureau of Statistics Lending Indicators for July reveal new loans for first-home buyers fell 48% to 8,338 – falling below the decade average of 8,787.

Louisa Sanghera (pictured above),  principal broker and director of Zippy Financial, who won the prestigious Broker of the Year award at the 2021 Australian Mortgage Awards, said first-home buyer activity had now returned to a level lower than what was recorded pre-pandemic.

“Back then, first-home buyers had been increasing slowly after many years on the sidelines because of the high property prices at the time – or so they seemed in retrospect,” Sanghera said. “However, the government’s popular HomeBuilder scheme changed that scenario, with a significant proportion of the 113,000 applications likely to have been first-time buyers keen to make the most of the financial grants that were available.”

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Sanghera said owner-occupier and investor activity was reducing more generally because of the higher interest rate environment, creating plenty of opportunities for prospective property owners.

“Now, that might sound counter-intuitive, but would-be property owners are the ones facing the fewest lending troubles at present because they are borrowing ‘cleanskins’, so to speak,” she said. “Borrowers with existing portfolios are often experiencing lending challenges at present, but not so much for people who are applying for their first-ever home loan. I do believe it’s a great time for first-home buyers to purchase right now – especially in Sydney because we have seen such a significant softening in prices since last year.”

Sanghera said the rising interest rate cycle appeared to be slowing, with rates still considered relatively affordable by historical standards.

“First-home buyers really need to be out t. purchasing over the next six months because this market lull is not likely to last forever,” she said. “Not only has t. been an increase in property listings, especially in Sydney, but t. also are far fewer buyers active in the market, which creates optimal buying conditions. My advice for prospective property owners is to strictly keep to their budgets, as well as calculate their potential future mortgage repayments by adding about one percentage point to the home loan rate on offer.”

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Sanghera said it was important for first-home buyers to understand that most brokers were not property experts or economists – unless they had undertaken extra training or qualifications.

“While we have a solid understanding of lending conditions, we do need to stay in our lane when it comes to market insights,” she said. “While we may pass on what we have seen or heard from our .s, such as real estate agents and buyers’ agents, this should never be considered expert market knowledge – unless the broker has additional skills and training in this area.”     

Sanghera said mortgage brokers could run their numbers and provide general advice on what first-home buyers might need to change to help them achieve their property ownership goals.

“Brokers can also assist first-home buyers with budgeting ideas as well as assessing future costs to ensure they can afford the mortgage,” she said. “Brokers will be able to source the best banks and products that suit their specific needs. We can also help them understand how changing interest rates may impact their future cash flow and mortgage repayments by running a number of scenarios for them specifically.”